Argos sales improve ahead of formal bids

British takeover target Home Retail reported improved trading at its Argos stores and a bigger-than-expected cash pile yesterday, a week before a deadline for bids.

Supermarket group Sainsbury’s and South Africa’s Steinhoff International are pursuing Home Retail, which said sales at Argos stores open for more than a year fell by 1.1% in the last eight weeks of its financial year to February 27, an improvement on a 2.6% drop for the year.

Chief executive John Walden said both bids were “interesting”, but Home Retail’s board needed to receive them before it could express a preference.

“We need to wait and understand whether there are firm offers forthcoming, and then we’ll figure out a process,” he said.

Argos’ total sales rose 1.9% to £515m (€672m) in the period, the company said in a statement, as demand for furniture and sports goods offset lower electrical product sales.

Like-for-like sales were impacted by the opening of 90 new stores over the year, it said. Mr Walden said he was pleased with the improvement in Argos’ sales performance and the progress the group was making online.

Sales through Internet channels, including reserving items for store collection and same-day home delivery, grew 13%, representing just over half of total Argos sales.

The group ended 2015 with underlying cash of £310m on its balance sheet, ahead of analyst forecasts by £100m.

It said net cash at the end of its financial year was around £625m, including disposal proceeds.

“That’s clear value that any buyer’s going to get immediately, so you would certainly think we have successfully added more value to the business in the last quarter,” Mr Walden told reporters.

Last month Sainsbury’s had a £1.3bn bid for Home Retail trumped by Steinhoff. Both suitors have been given until March 18 to formalise their offers.

Shares in Home Retail, which have jumped by more than 75% since news of a possible bid from Sainsbury emerged on January 5, were trading up 0.1% percent at 180p.

Analyst David Jeary at Canaccord Genuity noted that Steinhoff’s 175p-a-share offer was currently above Sainsbury’s mixed shares and cash offer, but below the market price, indicating a higher bid was expected.

Under UK takeover rules, whichever company bids first triggers a 53-day extension for their rival, effectively creating a “game of chicken” as each weighs up a bid.

Home Retail completed the 340 million pounds disposal of its Homebase home improvement business to Australian group Wesfarmers last month, leaving it with just the Argos business.

The company said it was on track to report profit before tax in line with market expectations of £93m.