Home Retail Group's (HRG) trading statement for the 18 weeks from 30 August 2015 to 2 January 2016 reported mixed results amid a sale which could happen in the next two weeks to Sainsbury and Wesfarmers in separate deals.
Wesfarmers plans to roll out the Bunnings brand within five years if it completes its plan to buy Homebase for £340m.
Homebase is the second biggest home improvement and garden retailer in the UK and Ireland, with 265 stores and reported revenue of £1.46 billion and operating profit of £19.8 million last financial year.
"The UK home improvement and garden market is an attractive and growing market," Wesfarmers said.
It added that the Homebase acquisition would provide an established and scalable platform for the market.
HRG chief executive John Walden said: "This has been a very eventful period for the Group. Argos traded through a challenging market while launching significant new propositions. During the period we also commenced and progressed discussions for the sale of Homebase to Wesfarmers Ltd., and received an approach from J Sainsbury plc for the potential acquisition of the Group.
"Against this backdrop, whilst Argos trading performance was mixed, I am pleased that we made material steps forward in the Argos Transformation Plan. Total sales at Argos increased 0.9 per cent. They were affected by volatile trading patterns resulting from particularly strong sales during Black Friday week, a shift in consumer demand from both the weeks before and after Black Friday, growth in digital transactions, reduced store footfall particularly on the high streets, and the continuing effects of price deflation. Argos like-for-like sales decreased 2.2 per cent in the period, while new digital concession locations added in the past year contributed 3.1 per cent to growth.
"In Homebase, like-for-like sales grew by five per cent while total sales declined by four per cent. The Homebase Productivity Plan, which includes an aggressive store closure programme, overhead reductions and customer proposition improvements, has begun to position Homebase as a smaller, higher quality and more efficient business. Yesterday we announced that we are in advanced discussions to sell Homebase, which would provide good value for shareholders and a growth opportunity for Homebase colleagues.
"The potential transaction would allow the Group to focus on Argos and its Transformation Plan, with an improved balance sheet and financial position, which I believe would represent an even greater opportunity for building long-term shareholder value. "As a result of the most recent trading period, we expect that Group benchmark profit before tax for the financial year ending February will be around the bottom of the current range of market expectations of £92m to £118m."
Former Garden Centre Group chief executive Nicholas Marshall competition among DIYs and large garden centre chains is set to toughen up after Wesfarmers buys Homebase.
He said Wesfarmer’s offer for Homebase was a "knockout blow" for his interest, with the City valuing Homebase at around £200m.
Marshall said he was in "pole position" to take over Homebase, which owner Home Retail Group is looking to sell, with its other retail chain Argos going to Sainsbury. But the offer from Wesfarmers, the Australian retail group which owns DIY chain Bunnings, was "double" City expectations.
Marshall said the offer was so serious that the deal was almost definite and will make Sainsbury’s offer for Argos easier, "because they never wanted Homebase in the first place".
See more in HW 22 January.