Dixons Retail sees electronics sales fall over Christmas

Dixons Retail (Other OTC: DSITF.PK – news) , the owner of the PC World and Currys chains, unveiled a decline
in sales over Christmas but a rise in margins and the lack of a profit
warning cheered investors.

Shares in Dixons rose 1 to 10.9p, or 10pc, as the group delivered an upbeat trading
report on Tuesday, with gross profit margins flat year-on-year despite
widespread discounting across the high street.

“Although sales have declined, margins have been kept flat, a win in today’s
retail climate,” said Keith Bowman at Hargreaves Lansdown.

Sales, however, continued their downward trend with like-for-likes in the 12
weeks to January 7 falling 5pc, driven by poor numbers in the UK and Ireland (Xetra: A0Q8L3 – news)
and Dixons’ businesses in Italy and Greece. The fall in group like-for-likes
was in line with analyst forecasts.

Same-stores sales in the UK and Ireland fell 7pc. Dixons operates 640 stores
in the UK but said online sales had risen in importance to make up 19pc of
revenues across the group, a 20pc rise year-on-year.

John Browett, chief executive, pointed to strong laptop and Kindle sales in
the UK as driving business, with consumers electronics significantly down.

Despite the falling sales number, Mr Browett said the group was outperforming
the competition: “It’s a good performance against a challenging backdrop.
Consumer confidence remains fragile.”

Analysts underlined Dixons’ success in maintaining margins as a positive. Mr
Browett said Dixons had enjoyed its strongest ever pricing and promotions
but claimed higher margin services and better stock control had offset any
impact.

Last year’s VAT rise distorted figures for the New Year period like-for-like
sales rose 23pc in the period from January 4 to 14.

While the going was tough in the UK, sales in Italy, Greece and Turkey were
even slower, down a combined 10pc. Dixons has a 30pc market share in Greece
and Mr Browett said the group remained committed to the country. He
described the likelihood of Greece leaving the euro as “low probability” but
said the group was in any case ready for such an event. Despite the gloom,
sales of laptops in Greece grew strongly over Christmas.

Mr Browett said the UK business had begun to see the benefits of rival Best
Buy’s withdrawal from the UK market but that any impact remained limited.
However, he claimed suppliers were increasingly seeing Dixons as the
sector’s go-to retailer and forecast the business would see “sharper
pricing, better choice, and product launches” as a result.

Asked about suggestions that Tesco (LSE: TSCO.L – news) will withdraw from some non-food
categories, Mr Browett said: “Supermarkets have found this market much
tougher than they expected. Some players are going back to products that
don’t require service.”

However, Matthew McEachran at Singer Capital Markets said: “Whilst the
withdrawal of Best Buy (Dusseldorf: BUY.DU – news) is clearly a positive relief, the transfer of
electricals developments over to Carphone, the potential for a more decisive
Comet turnaround, and ongoing activity at Tesco mean the market is still not
getting any easier. We may, however, be reaching a floor.”

While the group trading performance was in line with expectations, some
analysts expressed fears over whether Dixons would be able to meet a bond
repayment due in November (Stuttgart: A0Z24E – news) . Mr Browett played down those concerns: “We needed
to get through this trading period. We have got the cash and bank facilities
to repay the bonds,” he said. “We’re in good shape.”