Home Retail swings to annual loss as Argos deal results in £852m impairment charge

Shares in Home Retail Group edged lower early on Wednesday (27 April), after the Argos owner revealed it swung to a full-year loss on the back of a disappointing performance and a hefty goodwill impairment charge.

In the 12 months to 27 February, the FTSE 250-listed group, which earlier this year accepted Sainsbury's takeover bid, booked a £852m (€1.1bn, $1.2bn) charge on goodwill, which related to its acquisition of Argos from Great Universal Stores in 1998.

The charge saw the group post a full year-loss of £804m, while profit slumped 28%, year-on-year, to £94.7m once the exceptional item is stripped out of the equation and total sales declined 1% from the corresponding period in 2015 to £5.67bn.

Like-for-like sales at Argos fell 2.6%, year-on-year, compared with a 0.6% gain last year - a performance which the group described as "materially disappointing". However, Home Retail added that its £10m investment to transform Argos into a digital-first format had begun to deliver some results, with 20% of stores now operating in the new format.

"Argos also now has a proven digital store model, including small formats and concessions, which require lower capital outlay and provide customers with fast access to an expanded product range regardless of store stock capacity," said group chief executive John Walden.

"I am pleased that, with its offer for Home Retail Group, Sainsbury's has recognised the good progress we have made in transforming Argos into a digital retail leader."

On 1 April, Home Retail accepted a £1.3bn offer from the retailer, which valued the company at 171.5p per Home Retail share and giving its total issued ordinary share capital a value of approximately £1.4bn.

Scott Ransley, economist at Stifel Nicolaus, said the main challenges from Sainsbury's will be to "stabilise Argos's profitability and better capitalise on its service propositions".