Argos owner sees profits slump as Sainsbury's deal impairment charge hits

Stripping out the charge, annual operating profit slumped 28 per cent to £94.7m and sales across the group were down 1 per cent to £5.6bn.

The home and general merchandise retailer said it made an underlying pretax profit of £94.7m for the year to February 27, down from the £132.1m made in 2014-15. However, it beat analysts’ average forecast of £93m.

The exceptional impairment charge relates to Argos’s prior ownership under Great Universal Stores, which acquired the business in 1998.

The group said: “The recommended offer from Sainsbury’s for the purchase of Home Retail Group resulted in an exceptional goodwill impairment charge of £852m.”

Earlier this year, supermarket Sainsbury’s struck a deal to acquire Argos for £1.4bn and the deal is expected to complete before September.

John Walden, chief executive of Home Retail Group, said: “The group ended the year with a cash balance of £623m, which is significantly stronger than previously anticipated.

“The past year has been a landmark period for the group, during which we have completed the sale of Homebase and recommended to shareholders the offer from J Sainsbury for the acquisition of the remaining group, principally Argos.”

The group sold Homebase to Australian retail giant Wesfarmers for £340m in January.

Sainsbury’s said it’s takeover of Argos will create a “multi-product, multi-channel” business with around 2,000 stores, concessions and click-and-collect outlets.

David Tyler, chairman of Sainsbury’s, said: “The combined business will offer a multi-product, multi-channel proposition, with fast delivery networks, which we believe will be very attractive to customers and which will create value to both sets of shareholders.”

Sainsbury’s said it will roll out an existing agreement to locate Argos concessions in its supermarkets.

Up to 200 standalone Argos stores out of a portfolio of 845 may close as Sainsbury’s streamlines the business, according to reports.