Investment Column: Dixons delivers a seasonal shock

The market was expecting a slowdown at Dixons, which is why the shares had come off so sharply since their 720p peak in November. But yesterday's figures were worse than even the most pessimistic analysts had expected, hence yesterday's additional 10 per cent decline. No one was expecting a profits warning and a 4 per cent fall in like-for-like sales over the Christmas period.

In fact, the figures would have been even worse if it hadn't been for a post-Christmas surge as bargain-hungry consumers waited until the sales to buy higher-ticket items such as washing machines and dishwashers. In the weeks running up to Christmas, like-for-like sales were down by a thumping 7 per cent.

But this is no disaster story and it is one of the characteristics of Dixons that the market tends to over-react to both good and bad news. It is certainly true that Dixons is going to have a tough start to the year and the market will not easily forgive yesterday's shock.

It seems clear now that last summer's windfall payouts simply sucked forward some big-ticket spending rather than creating much in the way of incremental sales. Interest rates rises are starting to bite and shoppers are increasingly stalling some purchases until after Christmas when they can buy things more cheaply.

Given all ,this it is a testimony to Dixons' stock management that it managed to hold margins and not go into the winter sale with a serious stock problem. Another problem is that by the summer Dixons will be up against some extremely onerous sales comparisons as last July it was seeing 17 per cent like-for-like sales advances fuelled by the Halifax windfalls.

But Dixons should fare better later. The World Cup should increase demand for consumer electronics like higher priced televisions and videos. The launch of digital television in the summer will provide a further boost and while the departure of the finance director has come earlier than expected this remains a well managed company.

Management has not been deflected from its strategy of moving Currys out of high streets to retail parks and expanding both PC World and The Link.

Dixons shares may have flown too close to the sun last year but on revised analysts' forecasts of pounds 225m they now trade on a forward rating of just 14. That looks good longer-term value.

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