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Poor Christmas trading hits Dixons profit prediction

Published: 13 January 2011
Adverse weather in the run up to Christmas reduced UK sales by 2%, while full year profit is now expected to be at the bottom end of the firm's original forecasts.
Poor Christmas trading hits Dixons profit prediction
Total sales across the group were down 1%, with like-for-like figures down 2% for the 12 weeks ended January 8. Dixons described solid trade throughout the peak festive period, with a strong post-Christmas sale across the group, which includes its Nordic business and operations in Spain, Italy and Greece.

However, UK operations, which includes the Currys brand, were hit by adverse weather in the run-up to Christmas, which the firm estimates to have reduced sales by around 2%. Total growth for the group in the UK and Ireland was down 5%, while like-for-like growth dropped 4%.

The group has now downgraded its profit predictions for the year, stating that "full year underlying profit before tax is now expected to be around the bottom end of current consensus forecasts and in the range of £100m to £110m".

Group chief executive John Browett said of the results: "Peak trading has been solid in a tough market. The adverse weather conditions reduced footfall in the run up to Christmas day. We saw strong trade in the post Christmas sale as customers were keen to take advantage of our great deals...ahead of the rise in VAT in the UK."

Dixon's interim update explained that it had been able to offer competitive prices throughout the peak trading period as a result of cost savings across the business. However, gross margins for the group were down 0.2% year-on-year for the 12-week period.

The group's 'Renewal and Transformation' plan is still on track, insists Dixons, with new format stores delivering gross profit uplifts of 20%.

Mr Browett: "We continue to be pleased with the performance of the reformatted stores which trade ahead of the market. We remain cautious about the economic outlook across our markets, but we will continue to deliver on our Renewal and Transformation plan as we make the business better, easier and cheaper to run."

Commenting on Dixons' interim management statement, Credit Suisse said: "The profit downgrade clearly demonstrates the downside of operational gearing and the lack of operational flexibility close to Christmas. However, we would imagine that Dixons will be unfavourably compared with Home Retail today where similarly difficult UK conditions have been to a greater degree mitigated."

Argos and Homebase parent Home Retail Group upgraded its profit expectations in its trading update today. The group explained that it now expects group profit before tax for the full year to be around the mid-point of its previously guided range of £250-275m.

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