British takeover target Home Retail reported a worse-then-expected 2.2 per cent drop in like-for-like sales at its biggest chain Argos, hours after it said it was in talks to sell its Homebase chain for £340 million pounds (€450 million).

Home Retail, which supermarket group Sainsbury’s wants to buy, said Argos suffered a 13 per cent reduction in traditional walk-in sales in December, and a 10 per cent increase in digital sales was not enough to compensate.

Analysts had expected like-for-like sales at Argos to rise by 0.3 per cent in the 18 weeks to January 2nd.

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 to £118 million.

Like-for-like sales at its Homebase DIY stores rose 5 per cent, just short of analysts' average forecast. The company said late on Wednesday it was close to selling Homebase to Australia's Wesfarmers.

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 February 2nd under UK takeover rules to try again or to walk away.

Sainsbury’s said on Wednesday the tie-up, which is focused 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 or 200 pence a share.

- Reuters