Argos owner Home Retail Group says it is setting aside at least £30 million to compensate store card customers after overcharging late payment fees.
Home Retail said it had recently uncovered errors in the calculation of late payment fees for some Argos card customers and found the issue was now more widespread than first thought.
The details emerged as it posted its best sales performance for two years after shrugging off poor early spring weather and the “distraction” of its £1.4 billion takeover by Sainsbury’s.
Home Retail Group said like-for-like sales at Argos edged 0.1% higher in the 13 weeks to May 28, while total sales rose 2.6% to £868 million, thanks to a surge in online sales.
John Walden, chief executive of Home Retail, said the store card compensation issue was “not material”, but confirmed it affected up to 10% of Argos card customers.
The group had already put by £17 million in full-year results to the end of February to cover charges, including the store card payment errors and redress for mis-selling of payment protection insurance.
But it warned in its latest trading update that it may need to set aside around another £30 million.
Those affected are expected to receive compensation of up to £100 each and Home Retail will write to affected customers in the next few weeks.
Mr Walden said: “It’s not a material number of customers and not a material amount of money per customer.
“But for each customer it matters. We will address it and treat customers fairly.”
Guy Anker, managing editor at consumer advice website moneysavingexpert.com, said: “Store cards are the devil of plastic as it is.
“They often come with horrendously high APRs (annual percentage rates) and if companies are overcharging in terms of late fees than that’s a double whammy.”
He added that a £12 limit for late payment charges has been in place for 10 years, meaning it is “clear what the cap is” for store card companies.
Sales figures for Argos showed its digital makeover is bearing fruit as internet sales rose 16% in the quarter - its strongest growth for more than three years.
The Argos sales improvement marks its first like-for-like growth for a year and a half and its best overall performance for two years.
It said television sales bounced back after a tough year thanks to this month’s Euro 2016 football championship as well as strong sales of 4K TVs as households upgrade to the new technology.
It said best-sellers during its first quarter also included mobile phones, computers and tablets, while the group saw strong demand for furniture and sports goods.
But seasonal products were hit by the colder spring weather, while it also saw a drop in sales of white electrical goods.
Home Retail has had an eventful past few months, selling off its DIY chain Homebase to Australian conglomerate Wesfarmers for £340 million in February and agreeing a £1.4 billion takeover by Sainsbury’s a month later.
The deal is being looked at by the Competition and Markets Authority, but is expected to go through in the third quarter.
“Given the natural distraction that a transaction such as this can be for our colleagues, on top of the recent sale of Homebase, I am particularly pleased with our performance in the quarter,” Mr Walden said.