LONDON (Reuters) - British takeover target Home Retail (L:HOME) reported a worse-then-expected 2.2 percent drop in like-for-like sales at its biggest chain Argos, hours after its said it was in talks to sell its Homebase chain for 340 million pounds.
Home Retail, which supermarket group Sainsbury's (L:SBRY) wants to buy, said Argos suffered a 13 percent reduction in traditional walk-in sales in December, and a 10 percent increase in digital sales was not enough to compensate.
Analysts had expected like-for-like sales at Argos to rise by 0.3 percent in the 18 weeks to Jan. 2.
Home Retail said its benchmark profit before tax for the financial year ending February would be around the bottom of analysts' expectations, which range from 92 million pounds to 118 million pounds.
Like-for-like sales at its Homebase DIY stores rose 5 percent, just short of analysts' average forecast. The company said late on Wednesday it was close to selling Homebase to Australia's Wesfarmers (AX:WES).
Sainsbury's wants Home Retail's Argos to extend its general merchandise ranges and benefit from its investments in online and mobile, home delivery and click and collect services.
Home Retail rejected an approach from Sainsbury's in November, and the supermarket group has until Feb. 2 under UK takeover rules to try again or to walk away.
Sainsbury's said on Wednesday the tie-up, which is focussed only on Argos, was strategically compelling, but it wouldn't over-pay.
Media reports say it offered about 1.1 billion pounds but some Home Retail investors want 1.6 billion pounds or 200 pence a share.