Home Retail Group posts "significantly stronger" cash flow as time ticks on in Sainsbury's vs Steinhoff bid for Argos

Catherine Neilan
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Is Argos worth more than Steinhoff is currently offering? (Source: Getty)

Home Retail Group has revealed much higher cash flow levels and signs of improvement at Argos - the centre of a bidding war between Sainsbury's and Steinhoff.

The figures

Argos' like-for-likes dropped 2.6 per cent in the year to 27 February, to £4.1bn, as the retailer sustained second half declines of two per cent. Margins fell 50 basis points for the 52 weeks, dropping 175 basis points in the last six months.

Total sales stood at £515m for the eight weeks to 27 February, with like for likes dropping 1.1 per cent. Gross margins rose 75 basis points.

Homebase, which has now been sold to Wesfarmers, had a better time of it, with sales up 5.2 per cent to £1.43bn in the full year, although gross margins also fell, dropping 125 basis points. In the last eight weeks, margins have suffered greater declines of 225bps, although sales were up 3.3 per cent to £183m.

But the group's cash flow, excluding the impact of the Homebase transaction, was "significantly stronger than anticipated" and will be broadly flat for the financial year just ended, resulting in an underlying closing net cash position of around £310m. As a result, cash balance at the end of year should be higher than expected, at £625m.

The group said it also expects that profit before tax will come in line with consensus at £93m.

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Why it's interesting

Argos is at the heart of Sainsbury's and Steinhoff's bid for Home Retail - yet commentators have expressed a degree of puzzlement about why it's so attractive. Indeed on Sainsbury's last offer, which valued the business at £1.3bn, questions were asked about the maths behind the deal.

But Steinhoff's bid of £1.4bn has raised the stakes further.

With stronger than expected cashflow and signs of improvement coming from Argos, Sainsbury's boss Mike Coupe could well be expected to up the ante further.

Sainsbury's has already paved the way to make a hostile bid for the company if it chooses.

What Home Retail Group said

John Walden, chief executive of Home Retail Group, said: "This has been another rather eventful period for the Group, during which we completed the sale of the Homebase business and both J Sainsbury and Steinhoff International Holdings announced possible offers for the acquisition of the remaining group.

"I am pleased with the continued improvement in Argos' sales performance in the period, together with the continued progress in the Argos transformation plan to become a digital retail leader. In October we introduced FastTrack - market-leading propositions for same-day home delivery and store collection.

"Since its introduction, customer awareness of FastTrack has continued to grow and its operations are improving, with both on-time delivery rates and customer satisfaction now at leading levels. Along with FastTrack, the combination of our now proven digital concession model, together with improvements in digital experiences have driven increases in both digital sales and digital participation.

In short

All eyes will be on what Sainsbury's does next.

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