Argos-owner Home Retail reports annual profits down 28% ahead of Sainsbury's takeover

The retailer said it made an underlying pretax profit of £94.7 million for the year to Feb. 27, down from the £132.1 million made in 2014-15

Group sales fell 1 per cent to £5.67 billion. They were flat at Argos and down 3 per cent at home improvement retailer Homebase (Corbis)

Argos-owner Home Retail , which agreed last month to be taken over by British supermarket Sainsbury's , reported a 28 per cent fall in annual profit on Wednesday, reflecting tough markets and increased investment.

The home and general merchandise retailer said it made an underlying pretax profit of £94.7 million for the year to Feb. 27, down from the £132.1 million made in 2014-15. However, it beat analysts' average forecast of £93 million.

Last month Home Retail's board recommended a £1.4 billion cash and shares bid from Sainsbury's. The deal is expected to complete in the third quarter of this year.

Sainsbury's would have been well aware of market expectations for Home Retail's profit.

Group sales fell 1 per cent to £5.67 billion. They were flat at Argos and down 3 per cent at home improvement retailer Homebase.

Sainsbury's wants Argos to accelerate its growth by creating Britain's largest general merchandise retail business and by expanding its online presence.

Shares in Home Retail, up 71 per cent so far this year, closed on Tuesday at 170.2 pence.

In February Home Retail sold Homebase to Australian group Wesfarmers for £340 million. Wesfarmers intends to rebrand the chain as Bunnings and invest £500 million refurbishing its 265 stores.

Home Retail ended the year with a cash balance of £623 million.

It said recommendation of Sainsbury's offer resulted in an exceptional goodwill impairment charge of £852 million, leading to a total loss after tax for the 2015-16 year of £808 million.

The goodwill, which has remained unchanged for decades, had to be aligned to the value of Sainsbury's offer.