Argos has reported its strongest sales performance in two years as it prepares for its sale to Sainsbury’s, but also revealed it had set aside £30m to compensate store card customers who were charged “excess fees”.
Booming sales of top-end TVs, computers and tablets offset a decline in white goods and weaker sales of seasonal products during the chilly spring weather. Sales of computers and tablets were up 7% each, bucking a decline in the market. Furniture and wearable technology such as fitness watches also sold well.
John Walden, chief executive of Argos’ parent company Home Retail Group, credited a turnaround in the TV market from last year thanks to the new 4K technology, coupled with a boost from the Euro 2016 football tournament, which starts on Friday. Demand was strong for 4K, also known as ultra HD, televisions, which double the standard resolution, giving a better picture.
Like-for-like sales at Argos edged up 0.1% in the 13 weeks to 28 May, the first growth in six quarters. The poor weather is estimated to have reduced sales by 1%. Total sales grew 2.6% to £868m after new store openings.
Internet sales rose 16%, the strongest growth in more than three years, and made up almost half of total revenues in the quarter. Argos introduced Fast Track last autumn offering 20,000 products for immediate store collection or same-day home delivery, and Walden said this was starting to pay off.
He said the company remained on track to complete its agreed £1.4bn takeover by Sainsbury’s in the autumn. Walden also acknowledged that the five-month tussle had been “distracting” but insisted that “morale is good”.
Argos’ strong performance was overshadowed by news that the company had set aside £30m to compensate store card customers who were charged higher penalties for late payments than they should have been. The company discovered the calculation error, which affects less than 10% of its card customers, in the last few days and has yet to write to them.
Affected customers will get “at the maximum double-digit pounds” each. Walden said: “It is not a material matter for the business, but for each customer it matters … We will make it good by them.”
In February, the company took a £17m charge to cover compensation payments to customers, mainly for payment protection insurance.
George Salmon, equity analyst at Hargreaves Lansdown, said the £30m charge effectively wiped out the the profit made by the store card division over the last five years.
“Given the pending takeover, the board of Sainsbury’s will probably be shaking their heads at the news, though in the grander scheme of things the sum involved is not enough to derail the deal,” he said.
“There were some encouraging signs at Argos, in particular the strong increase in digital sales. The proposed takeover by Sainsbury’s now looms large in the future of both companies, and could deliver significant benefits, however the outcome of two challenged businesses joining forces still remains very uncertain.”
Andrew Stevens, lead analyst at consultancy Verdict Retail, described the transformation at Argos over the past two years as significant, and proves that combining a strong physical presence with a modern online offer is a good defence against solely online or store-only rivals.