Argos prepares for pounds 1bn spending spree

Argos, the catalogue retailer which shocked the market with a profits warning in January, said it was prepared to spend up to pounds 1bn on a UK acquisition.

Mike Smith, chief executive, said he had a list of targets in the toys, electricals and jewellery markets, though he was not in any talks. He would not comment on possible interest in the Littlewoods high street stores which were recently put up for sale, or in the British jewellery businesses of Signet, the H Samuel and Ernest Jones retailer with which it has been linked in the past.

"We would be prepared to look at turnarounds or at something in the furniture, sports or leisure markets," Mr Smith said.

Argos still has pounds 114m of net cash after last year's pounds 127m special dividend. Mr Smith said Argos would consider returning cash to shareholders if no suitable acquisition target could be found. He was speaking as Argos announced a 14 per cent increase in pre-tax profits to pounds 141m. Mr Smith also detailed the reasons behind the January profits warning, which was then attributed only to a pre-Christmas sales slowdown.

The company said sales in its key markets of toys, electricals and jewellery were down due to a decline in the market. However, Argos said it had grown its market share in those sectors.

It also said it had made mistakes in its pre-Christmas staffing policies. Temporary staff had been hired too late and given inadequate training. This led to longer queues at tills and a higher level of "walkaways" where customers give up waiting and go elsewhere.

Argos said sales in toys, electricals and jewellery had recovered strongly and were showing double-digit like-for- like sales increases. Group like- for-like sales are currently 7 per cent ahead.

Argos is set to expand in Holland and will open five stores there next February. Start-up costs will be around pounds 5m this year.

Thirty-eight stores were opened last year, taking the total to 404. There are now 10 Call & Collect outlets where customers call to place orders and collect the goods the following day. Two further First Shop stores have been developed as Argos tests the concept of selling electrical goods and consumer durables at lower prices.

The shares closed 9.5p higher at 648.5p.

Investment column, page 22