John Clare, Dixons' chief executive, said that although the group sold a similar number of game machines to last year, prices dropped sharply, which meant that the value of sales fell by between 40 and 50 per cent. 'The price dropped from pounds 129 to pounds 99 in mid-November. It was started by Woolworths, but most other retailers followed very quickly.' In the few days immediately before Christmas, prices were cut further to pounds 89.
Excluding games, sales at the group's Dixons and Currys chains rose about 9 per cent in the seven weeks since 14 November with sales of televisions, hi-fis and videos 'well up year-on-year'. But the damage caused by the price war meant that, overall, sales were flat and the group warned that profits from its UK retail business for the year to end-April is likely to be below the pounds 77m achieved last year.
The warning surprised the City, which had been expecting a more positive trading statement, and the group's shares fell 43p to 240p. Kingfisher, which owns the Comet electrical retail chain and sells video games through its Woolworths stores, was also marked down 15p to 747p. It has not yet made any statement on Christmas trading.
The disappointing performance from computer games partly reflects their success in Christmas 1992, when sales more than doubled helping the group to a 17 per cent rise over the period. Mr Clare said that sales of software for the machines, which are spread more evenly through the year, held up well.
He added that the group was considering its future strategy for the machines. 'We sold a lot of games at Christmas but at very low margins, which is not something I want to repeat.' The retailers are likely to ask manufacturers to cut their prices.
Elsewhere, news on Christmas trading was more encouraging. Boots said that its retail businesses increased sales by 7.2 per cent in the three months to December, with Children's World - up 28.7 per cent, helped by new openings - and Halfords - up 10.1 per cent - among the best performers.
At its chemist chain, sales were 6.3 per cent higher, or 4.9 per cent if new space is excluded. Among the best-selling lines were cosmetics, where sales rose more than 25 per cent. At Halfords, bicycles also did well, spurred by the group's decision to sell one model at pounds 99.
Sir James Blyth, chief executive, said: 'The results confirm that although the retail market place continues to be highly competitive, there is some general uplift in consumer demand.' He added that the good Christmas performance meant the group had minimal remaindered stock. Boots' shares closed 5p lower at 582p.
At Wm Morrison, sales rose 12.9 per cent in the five weeks to 2 January, although 80 per cent of that was due to new store openings. Produce, non-food items and petrol performed particularly strongly, but tobacco, wine and spirits were weaker.
Dixons' trading statement was combined with the announcement that interim profits before exceptionals rose pounds 3.3m to pounds 17.3m. But a pounds 210.5m loss on the sale of Silo, its US business - including pounds 191.1m of goodwill previously written off - pushed it into a pounds 196.7m pre-tax loss. The dividend was increased 6.25 per cent to 1.7p, despite a 49.2p loss per share (0.9p earnings).
The Christmas statement prompted analysts to downgrade their forecasts, with Rodney Forrest of Credit Lyonnais Laing cutting his from pounds 90m to pounds 80m, before exceptional charges.
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