Dixons feels the pain as consumers spend less

Shares in Dixons, which runs the Currys and PC World chains, fell last night after it said like-for-like sales at British and Irish stores slumped 11 per cent in the 11 weeks to March 26.

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

Consumers are 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.

Dixons chief executive John Browett said: “This is just the short-term stuff around a tough market while people are getting through the public expenditure cuts.”

He said the company is trading ahead of the wider market and its recovery plan is working.

“We do not believe this means anything for the structure of the industry or how we should operate,” he added.

He said he expects consumer confidence to be fragile through much of 2011, predicting only “modest profit growth” in Dixons’ for 2011-12.

The group said that cutting-edge new technology, such as Apple iPads and Nintendo 3DS devices, are selling well, but consumers are backing away from big-ticket items.

Dixons, Europe’s second biggest electricals retailer, detailed four measures in response to the worsening trading environment.

It said it will probably exit a tough Spanish market, where it trades from 34 stores, employing 1,200.

It will also reduce capital spending to no more than £160m in 2011-12.

In addition, it will focus on cash generation and cut annual costs by £50m for the next three years, extending a previous two-year target.

The group said no new store closures were planned in the UK, where it employs around 20,000.

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

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

Shoppers have been economising on groceries, traditionally the most resilient area of consumer spending, and Thomas Cook, Europe’s second biggest 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.

Dixons shares fell 18 per cent, and closed down 3p to13.7p.

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

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 year ending April 30 was likely to be around £85m.

Analyst forecasts were in a £85m-£109m range, according to the company, while the median estimate was £105m.

Dixons said it saw little option but to close its Spanish chain.

It is now launching a consultation process as it reviews the business, which is making losses of around £5m a year.

The group’s sales decline for the 11 weeks to March 26 marks a significant deterioration on the four per cent slide seen over Christmas, although it believes it outperformed bigger falls in the wider consumer electronics market.

Dixons said it was unlikely trading conditions would improve as household budgets come under pressure. Mr Browett said the VAT hike to 20 per cent had added to an already tight squeeze on consumer finances in the UK.

He added that the group will focus on self-help measures in the UK to try to offset the sales pressure without impacting its store revamp plans.

“In a difficult market we have to do what we can to help ourselves,” he said.

“In the UK, where we have this period of tough trading, we have to show real grit and determination.”

It aims to overhaul 55-60 UK stores.

High street sales remain poor

Retail sales picked up unexpectedly in March, but the rate of growth remained subdued amid grim conditions on the high street.

A balance of 15 per cent of retailers saw sales increase year-on-year in March, compared with six per cent the previous month when the reading hit an eight-month low, the latest distributive trades survey from the CBI showed.

The result was better than feared, although it was still the second-lowest reading since last June.

The CBI findings showed a balance of 24 per cent and said trade was poor for the time of year – its lowest reading since August 2009 – while a majority thought sales would continue to underperform in April.