Trading at Dixons down by as much as 8%, say experts

A NUMBER of big-name retailers and pub chains will reveal how they held up over the crucial trading period this week.

Shoppers are expected to have inflicted more pain on PC World and Currys owner Dixons Retail, which reports tomorrow, after they cut back on expensive electrical items over Christmas.

The British Retail Consortium recently reported that big-ticket items such as TVs were hard to shift over Christmas although one bright spot was tablet and laptop computers.

Dixons, which has 640 stores in the UK and Ireland, has suffered falls in sales and profits in recent months but has won a bitter price war with rivals after Comet was sold for £2 and BestBuy threw in the towel in the UK.

The City is expecting Dixons to reveal like-for-like sales declines of between 6% to 8% in the three months to the end of December, despite high levels of discounting and a high-profile advertising campaign over Christmas featuring Star Wars’ Darth Vader.

This would be about the same level as the 8% falls it suffered in the previous half-year.

However, some analysts believe electrical items may have benefited from slightly less discounting than some of the other sectors, such as clothing, over Christmas.

This is because Kesa Electricals is unlikely to put on a huge number of promotions at Comet before the chain is handed over to new owners. And while Best Buy may have promoted hard-to-clear stock, with only a handful of stores it is too small to disrupt the overall market.

Group sales are expected to be down between 4% and 6%, as further growth in its Nordic business is offset by declines in southern Europe.

Independent retail analyst Nick Bubb said: “The Christmas trading update from Dixons is likely to be frustratingly mixed again – good in the key Nordics business, not too bad in the UK and very bad in the rest of the group overseas.”

Dixons’ shares have lost two-thirds of their value over the past two years after it shocked markets with a series of profits warnings.

The ongoing squeeze in consumer spending is set to play into the hands of Primark owner Associated British Foods.

The budget retailer, which runs some 150 stores in the UK, reported a 3% increase in like-for-like sales in the year to September 17 and the City expects it to report further growth on Thursday.

Its profit margins have been squeezed over the past year as it absorbed some of the recent hikes in cotton prices but this strategy is thought to have paid off by bagging it a greater share of the clothes market.

Primark’s performance in recent months is understood to have been resilient despite the blizzard of promotions in the clothes sector over Christmas and the mild autumn weather, which hit clothes sales.

Robert Waldschmidt, an analyst at Bank of America Merrill Lynch, expects Primark to continue to gain share in 2012 as consumers trade down.

He predicts that like-for-like sales will rise 2% throughout the year, while opening a further 13 stores at home and overseas will help boost its share of its markets.

The bank has carried out research that shows that Primark is perceived to be the cheapest clothes retailer in the UK, outstripping even the supermarkets. And it is considered to be even cheaper than it was a year ago.

Its research also revealed that price is currently the most important consideration for UK shoppers, which bodes well for the fortunes of Primark. Lower cotton prices will start to benefit the group from the second quarter of the year and have the potential to boost its margins by one percentage point. But Mr Waldschmidt suspects Primark will pass these on as it looks to gain more market share.

He thinks the strong performance of Primark and its sugar division will see the company’s underlying profits increase 9% to £1.1bn in the year to September.

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