Electricals giant under pressure

Europe’s largest electricals retailer was under pressure today after its Christmas trading performance led to a sharp fall in its share price.

DSG International, which owns Currys, suffered the backlash from investors after reporting weaker-than-expected sales and profits margins.

Sales at Currys were up by 1% in the eight weeks to January 6, but the figure masked a poor start that was only rescued by a late Christmas rush.

DSG also warned that margins across the group were down 0.7% against last year, following disappointing performances in Italy and France.

Woolworths and the owner of Argos and Homebase were also in the spotlight, but pleased investors by protecting margins in the face of difficult trading.

Home Retail Group said its two businesses would deliver profits at the top end of expectations, even though like-for-like sales only edged up at Argos and were down 2.9% at Homebase in the 14 weeks to January 6.

Chief executive Terry Duddy said the company had opted to reduce promotions and curbed costs in a subdued market.

He added: “Looking forward, the retail environment is likely to remain challenging and we continue to position our businesses accordingly.”

Woolworths spared further pain for investors when it said it was on track to meet the recently lowered expectations of market analysts.

It said weak DVD and CD markets meant like-for-like sales in its main business were 4.6% lower in the six weeks to January 13, but this was an improved trend following a poor start to the Christmas season.

Margins have picked up, while Woolworths should have less surplus stock at the end of its financial year.

Shares in Woolworths and Home Retail Group were in positive territory, but DSG slumped 12% as brokers downgraded their price targets for the stock.

As well as weak Christmas trading, analysts were disappointed that interim profits, also announced today, were £1m (€1.5m) shy of forecasts at £97m (€147.7m). DSG had already lowered expectations because of problems at its Italian business UniEuro.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said the figures revealed mixed fortunes across the range of its operations.

He said: “The highly disappointing contribution from the Italian unit, UniEuro, which accounts for nearly 10% of its sales, has been a major drag on the shares. In addition, trading in France has been tough.

“And whilst sales of flat screen TVs have been strong, prices have inevitably been falling as they become more prominent in UK households. This has put considerable strain on margins.”

DSG did offer some encouragement on trading as it said sales for its Dixons.co.uk brand had “exceeded expectations”.

Chief executive John Clare pointed out that the imminent arrival of Windows’ new operating system Vista, which requires higher-specification laptops and PCs, presented a “significant opportunity” to arrest price deflation in the sector.