While British retailers are enjoying a rebound in consumer spending for the first time in about a year, prompted by cheaper borrowing costs and brighter economic prospects, Dixons said price erosion is a problem. Bargains are bringing consumers back to the stores, though Dixons said it has got to sell greater numbers of goods to keep profits growing.
"The core business did well in the second half and the price depreciation was offset by strong volumes," said Isabelle Payet, from Sutherlands. "Looking forward, prospects continue to be good."
Dixons' shares fell on concern that price cuts could hurt margins and because the company offered no details about plans to use its cash to expand market share. The stock dropped even as the company said it expected enough growth to create about 3,000 jobs this year, after hiring the same number last year.
Dixons is banking on new technology and more electronic commerce to bring growth. Selling shares in Freeserve, Britain's first internet access service without subscription fees for its 1.25 million users, will be the biggest offering of an internet stock in Europe.
The company said internet use in the UK has "dramatically expanded" in the past year, as evidenced by half the new Freeserve subscribers being new to the internet. On average, Freeserve clients use the service every day for a total of more than 500 million minutes a month.
The success of pre-paid calling brought a 100 per cent increase in mobile- phone sales and The Link phone stores increased sales by 77 per cent. Sales of TVs and VCRs fell as consumers delayed purchases, while sales of appliances slowed to 1 per cent after two years of strong growth.