March 30, 2011 / 6:41 AM / 7 years ago

Dixons warning raises spectre of retail slump

LONDON (Reuters) - Dixons, Britain’s No.1 electricals retailer, served up a profit warning and gloomy forecast for 2011-12, adding to evidence cash-strapped shoppers are cutting back massively on non-essential spending.

<p>Pedestrians walk past a Dixons electrical retail shop in London April 28, 2004. REUTERS/STR New</p>

Shares in Dixons, which runs the Currys and PC World chains, fell 18 percent on Wednesday after it said underlying sales at British and Irish stores slumped 11 percent in the 11 weeks to March 26.

“Like-for-like sales have dropped off a cliff,” Seymour Pierce analyst Kate Calvert said.

British consumers look increasingly unwilling to spend as muted earnings growth and higher inflation, fuelled by January’s rise in VAT and higher oil and food prices, bite into real incomes.

They are also worried about job losses and welfare reductions related to government spending cuts, as well as the prospect of higher interest rates.

“This is just the short-term stuff around (a) tough market while people are getting through the public expenditure cuts,” said Dixons chief executive John Browett, who said the firm was trading ahead of the wider market and its recovery plan working.

“We do not believe this (profit warning) means anything for the structure of the industry or how we should operate.”

Browett expected consumer confidence to be fragile through much of 2011-12 predicting only “modest profit growth.”

Cutting-edge new technology, such as Apple iPads and Nintendo 3DS devices, were selling well, but consumers were backing away from big ticket items, he said.

Dixons, Europe’s No.2 electricals retailer behind German group Metro’s MediaMarkt-Saturn, detailed four measures in response to the worsening trading environment.

It said it would likely exit a tough Spanish market, where it trades from 34 stores, employing 1,200; would reduce capital spending to no more than 160 million pounds in 2011-12; focus on cash generation; and cut annual costs by 50 million pounds for the next three years.

Numis analyst Andrew Wade said the plan “reads more like a proposal to the banks than a strategic review.”

Dixons expects net debt of about 250 million pounds at its April year-end but plans to raise 55 million pounds from the sale of a Swedish warehouse.


A string of British retailers have reported a downturn in trading since the start of the year, raising fears a fragile economic recovery could be derailed.

Britons have been economising on food, traditionally the most resilient area of spending, and Thomas Cook, Europe’s No. 2 travel company, said they also were cutting back on foreign holidays.

Earlier this month, Home Retail, Britain’s biggest household goods retailer, issued a profit alert.

Separately on Wednesday, the Co-operative Group, Britain’s biggest mutual retailer, said it did not expect a recovery in consumer spending until next year, while a Confederation of British Industry survey said the underlying trend for retail sales remained weak.

“Given that consumer spending accounts for some 65 percent of GDP, this is worrying for growth prospects and something that the Bank of England is thinking very carefully about as it agonises over whether to raise interest rates,” said IHS Global Insight economist Howard Archer.

Dixons shares, which have lagged the STOXX Europe 600 retail index by 50 percent over the past year, were down 17.55 percent at 13.81 pence at 3:08 p.m., valuing the company at about 491 million pounds.

Shares in rival Kesa Electricals, owner of the Comet chain, were down 4.5 percent.

Dixons, which also runs Elkjop in Nordic countries, UniEuro in Italy and Kotsovolos in Greece, said profit before tax and one-off items for the 2010-11 year was likely to be around 85 million pounds. Analyst forecasts were in a 85-109 million pounds range, according to the company, while the median estimate was 105 million, according to Thomson Reuters I/B/E/S.

Editing by Dan Lalor and Hans Peters

Our Standards:The Thomson Reuters Trust Principles.
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