UK's Sainsbury's sells general merchandise business Argos for £120 million

By Sarah Young and Paul Sandle

LONDON, July 31 (Reuters) - British supermarket chain Sainsbury's has agreed to sell Argos for at least £120 million ($161 million), exiting the general retail business it bought for £1.1 billion just 10 years ago to focus on its grocery offer.

The business, which was known for its sales catalogues before it went fully digital in 2020, is being bought by retail veterans Richard Pennycook and Trevor Strain, and retail investment specialist Matt Truman.

Sainsbury's said the disposal, which comes a year after it held talks with a Chinese suitor for Argos, was the next step in CEO Simon Roberts' strategy to strengthen its core food business since he took over in 2020.

The group is Britain's no. 2 supermarket chain behind Tesco, and has grown its share to about 15% in Britain's fiercely competitive grocery market, its highest in a decade.

Its shares were trading up 3.5% in early deals on Friday.

Roberts said the disposal of Argos, including the Habitat homewares brand, was the next step after Sainsbury's sold its core banking business and ATM operations in 2024 and 2025.

"Over the last six years we've been totally focused on resetting food at the heart of the Sainsbury's brand," he told reporters on Friday when asked if buying Argos had been a mistake.

Argos operates 667 stores, of which 466 are in Sainsbury's stores and 201 are on the high street.

Pennycook said Argos could open more stores, both within new Sainsbury's supermarkets or in standalone locations where the supermarket does not have a presence.

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General merchandise retailers have struggled in Britain over the last decade, as consumers have increasingly turned to U.S. online giant Amazon. Tesco scaled back its non-food online platform, Tesco Direct, in 2018.

Argos, whose range includes furniture, electrical goods and toys, will be owned by the consortium called Swift Partners when the deal completes in February 2027.

Set up to acquire Argos, Swift is run by Pennycook, a former CEO of the Co-operative Group, Strain, a former executive at Morrisons supermarket, and Truman, who runs retail investment firm True Capital, backed by major banks.

Speaking after the deal was announced on Friday, Roberts and Pennycook emphasised the long-term commitment of the new owners to Argos, saying they planned to invest and grow the business.

Sainsbury's and Argos have agreed a commercial partnership over stores, collection points, the Habitat brand and loyalty cards, they said.

Under the agreement, Sainsbury's expects to receive cash proceeds of at least £120 million, including at least £70 million upon completion, with the remainder to be paid over the following three years.

Sainsbury's said the sale would have a broadly neutral impact on its profit and would be low single-digit accretive to underlying earnings per share, although it expects to record a £350 million non-cash impairment charge.

($1 = 0.7440 pounds)

(Reporting by Sarah Young in London and Atharva Singh; Editing by Paul Sandle and Jan Harvey)