Dixons Retail has issued its second profit warning in as many months, prompting fears that the retail sector is heading into a severe downturn as hard-up British consumers tighten their wallets in the face of declining income and rising inflation. Shares in the UK’s number one electrical retailer tumbled more than 18% yesterday in the wake of the announcement.
Formerly known as DSG International, Dixons Retail plc sells a wide range of electrical appliances and consumer electronics products – ranging from cookers and freezers to laptops and HDTV sets – through its Currys and PC World brick-and-mortar stores, as well as its Dixons.co.uk ecommerce portal. However, sales have taken a nosedive since the turn of the year: the group reported a 11% drop in like-for-like sales in the 11 weeks to the 26th of March at the company’s chain of stores in the UK and Ireland.
Dixons’ chief executive John Browett pointed the finger at government cuts, the 2.5% increase in VAT (value added tax), and weakening consumer sentiment as crucial factors that contributed to the company’s lacklustre retail sales performance thus far. Warning that consumer confidence would remain fragile in several key markets where the company operates, he sought to temper expectations by predicting only a “modest profit growth” for the next couple of years.
The group still expects underlying profits for its financial year ending the 30th of April to reach £85 million, but some analysts have downgraded the company’s pre-tax profit forecasts to as low as £80 million, which represents quite a drastic revision from the £110 million figure bandied about prior to the profit warning. Moving forward, Dixons plans to raise £55 million from the sale of a Swedish warehouse to balance its books, and flog off its Spanish network of 34 underperforming stores to cut costs.