Last checked at 
LONDON (Alliance News) - Home Retail Group PLC, which has been the centre of attention for acquisition activity in the UK retail sector since the start of 2016, delivered a mixed trading update for the festive season on Thursday, with its thinned-out Homebase chain performing well but Argos facing difficulties, leading it to cut its expectations for the full year.
Shares in Home Retail were down 2.5% to 145.60 pence on Thursday.
The FTSE 250-listed company said its pretax profit for the year to the end of February will be at the lower end of market expectations of GBP92.0 million to GBP118.0 million. This would be down from GBP132.1 million a year earlier.
Home Retail said total sales for Argos in the 18 weeks to January 2 rose 0.9%, though like-for-like sales fell 2.2%, with the group's new digital concession locations the main contributor to the sales growth. But trading patterns for Argos were affected by the Black Friday promotion, a shift in consumer demand around that event, and reduced footfall at high street stores.
For Homebase, Home Retail said total sales fell 4.0%, even as like-for-like sales grew 5.0%, as the restructuring of its store base, including the closure of underperforming stores and a focus on a smaller overall portfolio, paid dividends.
However, it was those restructuring costs, plus spending to convert Argos stores into digital concessions and the cost of its FastTrack same-day home delivery service, combined with the mixed festive trading conditions at Argos, that prompted the group to trim its profit guidance.
Late on Wednesday, Home Retail had said it had entered talks with Australian retailer Wesfarmers Ltd to sell the Homebase business for GBP340.0 million. Home Retail Chief Executive John Walden said the sale of Homebase would allow the group to focus on its Argos transformation plans, but the divestment also suggests the path would be cleared for J Sainsbury PLC, the FTSE 100-listed grocer, to buy the Argos business.
Sainsbury's made a bid for Home Retail in November, which was rejected, and now has until February 2 to make a firm offer or walk away. Revealing the bid, however, Sainsbury's made little reference to Homebase, which it co-founded and sold off more than a decade earlier, but comprehensively outlined the potential benefits from buying Argos.
Should Home Retail's talks with Wesfarmers lead to a sale of Homebase, that would leave Sainsbury's the room to buy the Argos unit without having to also take on, and then sell off, Homebase itself.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
