HOME RETAIL GROUP PLC 
LONDON (Reuters) - Argos owner Home Retail (>> Home Retail Group Plc) said on Thursday it may need to increase a provision by up to 30 million pounds to compensate financial services customers who were overcharged, taking the shine off its best quarterly trading report for two years.
The retailer, which in April agreed to be taken over by supermarkets operator Sainsbury's (>> J Sainsbury plc), said its financial services division had identified it erroneously collected excess fees in relation to the late payment of amounts due from some customers.
It booked a small charge in its 2015-16 results, published in April, but now believes a more extensive customer redress programme is required, necessitating a possible increase in the provision by around 30 million pounds.
"In the ordinary course of us checking our procedures we discovered that there was a calculation error in the penalty charges for customers who were making late payments, so we were slightly overcharging," Chief Executive John Walden told reporters.
"We're going to correct that for those customers that were effected," he said, noting that the number impacted was less than 10 percent of its active financial services customer base and the monies involved were a maximum of "double digit pounds" per customer.
Finance Director Richard Ashton said 30 million pounds was not a "material" number for Home Retail.
"This is a provision on the balance sheet and our balance sheet runs into billions of pounds so in that context that's how we describe it as not material."
Home Retail said catalogue-based retailer Argos's total sales rose 2.6 percent to 868 million pounds 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 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 deal is currently being vetted 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 in Home Retail, up 62 percent so far this year, were up 0.6 percent at 162 pence at 0815 GMT.
(Reporting by James Davey; editing by Kate Holton, Greg Mahlich)
