Home Retail Group – the company everyone wanted a slice of earlier this year – has revealed a full year profits drop of 28 per cent as sales ticked down.
HRG and Sainsburys' share prices were both down in early trading.
The Homebase and Argos parent company said benchmark pre-tax profit fell 28 per cent in the year to 27 February to £94.7m. Group sales were down one per cent – flat at Argos, while tumbling three per cent at the DIY specialist.
Cash gross margins also fell three per cent to £1.97bn.
The recommended offer from Sainsbury resulted in an exceptional goodwill impairment charge of £852m, leading to a total loss after tax of £808m.
Why it's interesting
HRG was at the centre of a bidding war for much of the start of the year, with Sainsbury's, Australian group Wesfarmers and South African firm Steinhoff all vying for a part of the firm.
Wesfarmers succeeded in acquiring Homebase for £340m – the deal completed on 27 February, with £337m being received in the 2016 full year, with the remainder due in the following year. Sainsbury eventually won its bid, after Steinhoff dropped out to continue pursuing its suit for Darty.
But while Sainsbury's boss Mike Coupe sees significant value in Argos when combined with the supermarket's existing strengths, there are still question-marks over whether the object of its desire.
Today HRG admitted Argos' financial performance had been "disappointing", although insisted it was making good progress.
"From 2012, Argos has become a materially improved business with a strong complement of new strategic digital capabilities. There is more work to do, but many of the building blocks are now in place," the company said in a statement.
What HRG said
Chief executive John Walden said: "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 Sainsbury for the acquisition of the remaining group, principally Argos. 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.
"During the year we continued to progress the Argos transformation plan, including the introduction of Fast Track, which offer market-leading propositions for both same-day home delivery and store collection. We have been encouraged by the customer response to Fast Track with our on-time delivery rates and customer satisfaction having continued to improve to leading levels.
"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.
"Finally, the group ended the year with a cash balance of £623m, which is significantly stronger than previously anticipated. With leading digital capabilities, new Fast Track propositions, proven and flexible digital store formats and strong financial resources, we are well positioned for an exciting future."
An uninspiring final set of results from HRG, meaning the jury is still out on whether Sainsbury's has done the right thing.