Argos has posted its strongest sales growth in nearly two years and is on track to be taken over by Sainsbury's later this year, results published this morning confirmed.
Sales at Argos climbed by 0.1 per cent in the first three months of the financial year on a like-for-like basis, coming in at a total of £868m.
Internet sales grew by 16 per cent over the quarter and now account for just under half of Argos' total sales at 49 per cent.
More than one-quarter of revenue came from mobile sales, which made up 29 per cent of income, up from 25 per cent last year.
Argos' gross profit margin, however, dropped by around one percentage point in the latest sign of strains on profitability for UK retailers.
Why it's interesting
With the retail industry in a bit of a sticky spot this week due to goings on in Westminster, Argos' results convey the banality of a job well done, with sales growth ticking up nicely and digital transformation on track. The fate of high-street staples BHS and Austin Reed show how different it could have been.
With online sales set to account for more than half of Argos' business in the second quarter of this year, and its mobile website performing strongly, it is easy to see why Sainsbury's – which posted difficult results yesterday – came knocking.
On that £1.4bn takeover deal, Argos said everything was on track to sign a final deal in the third quarter of this year.
In a potentially troubling sign, however, Argos has set aside an extra £30m for compensation claims after it found evidence that its financial services division had "erroneously collected excess fees in relation to the late payment of amounts due from certain customers".
What Argos said
John Walden, chief executive of Home Retail Group, said: "Argos delivered good total sales growth together with positive like-for-like growth, representing its strongest sales growth performance in eight quarters. This was achieved against the challenging backdrop of constrained seasonal product sales due to poor weather, on top of a deflationary pricing environment.
"We remain on track to complete the proposed transaction with Sainsbury's in the third quarter of this calendar year. Given the natural distraction that a transaction such as this can be for our colleagues, on top of the recent sale of Homebase, I am particularly pleased with our performance in the quarter."
Digital transformation has stopped the rot at this high-street staple, but turning a profit remains a challenge as motivation for a £1.4bn takeover by Sainsbury's becomes even clearer.