Argos owner Home Retail PLC (LON:HOME) reported a slight rise in first quarter sales but said it was facing a £30mln hit for overcharging store card customers.
Home Retail, which is set to be taken over by Sainsbury’s PLC (LON:SBRY), said like-for-like sales rose 0.1% to £868mln in the 13 weeks to May 28, while total sales increased 2.6%.
The group said the figures represented Argos’s best sales performance in eight quarters against a backdrop of bad weather and price pressure.
It added that the deal with Sainsbury’s was on track to complete in the third quarter.
But the company shocked the market with the news that its financial services arm had imposed excessive late payment charges on some store card customers.
The group did book a charge to cover the cost but advisers later told it that it would need to put more aside.
Home Retail pledged a detailed review, but added: “A preliminary estimate has been prepared, which indicates that the existing customer redress provision may need to be increased by an amount in the region of £30m.”
Investors appeared to shrug off the news, sending the group’s shares up 0.3p to 161.3p.
Hargreaves Lansdown said the £30mln was “pretty much all the profits Argos has made from its financial services division over the last five years, and stands in addition to £17mln set aside for customer redress last financial year, which includes PPI compensation.”
HL equity analyst George Salmon said: “Given the pending takeover, the board of Sainsbury’s will probably be shaking their heads at the news, though in the grander scheme of things the sum involved is not enough to derail the deal."