Home Retail's Argos has best quarter in two years

LONDON, June 9 (Reuters) - Home Retail (Other OTC: HMRLF - news) 's Argos reported its best quarterly sales performance in two years on Thursday, indicating the distraction of a yet to complete takeover by supermarket Sainsbury (Amsterdam: SJ6.AS - news) 's has not damaged trade.

The firm said Argos' total sales rose 2.6 percent to 868 million pounds ($1.3 billion) in the 13 weeks to May 28, its fiscal first quarter, with sales at stores open over a year up 0.1 percent. Gross margin did, however, fall 1 percentage point.

"Argos delivered good total sales growth together with positive like-for-like growth, representing its strongest sales growth performance in eight quarters," said Chief Executive John Walden.

He noted the outcome was achieved against the challenging backdrop of constrained seasonal product sales due to poor weather, on top of a deflationary pricing environment.

Home Retail agreed a 1.4 billion pounds takeover deal with Sainsbury's in April. The transaction is currently being considered by the competition regulator, which said last month it would decide by July 25 whether to launch a full investigation.

Walden said Home Retail was on track to complete the deal in the third quarter of 2016, echoing Sainsbury's comment on Wednesday.

"Given the natural distraction that a transaction such as this can be for our colleagues...I am particularly pleased with our performance in the quarter," he added.

Shares (Berlin: DI6.BE - news) in Home Retail, up 62 percent so far this year, closed Wednesday at 161 pence.

Home Retail also said it would need to increase a provision to redress financial services customers where erroneous excess fees were collected by 30 million pounds. ($1 = 0.6893 pounds) (Reporting by James Davey; editing by Kate Holton)