Investment Column: PCs add shine to Dixons' sparkle

Shares in electrical retailer Dixons have been stellar performers since the start of 1995, beating a strong stock market by 127 per cent. They put on another 14.5p to leave them at 530p yesterday after the Currys- to-PC World retail group unveiled another set of sparkling results and said underlying retail sales were 12 per cent ahead in the first ten weeks.

Excluding a pounds 33.7m exceptional loss on Dixon's ill-judged investment in US retailer Fretter, pre-tax profits showed a 35 per cent increase to pounds 135.2m on like-for-like sales 11 per cent higher.

Despite these results, chief executive John Clare is reluctant to attribute Dixons' success to a return of the so-called feel-good factor.

Although the year has started well, Mr Clare notes that sales in white goods (fridges, washing machines and the like) grew just 3 per cent by volume last year, while brown goods (televisions, stereos and the like) were up a mere 1 per cent.

Dixons' electrical retailing operations have undoubtedly benefited as first Rumbelows and then most of the regional electricity companies have quit the high street.

Over half of Dixons' sales come from its white goods operation, Currys, which increased turnover by 16 per cent to pounds 1.00bn. Most of that growth came from the out-of-town Superstores format. Further advances clearly depend upon a sustained recovery in the British housing market.

But the main driver behind the impressive figures was booming sales of personal computers through the PC World chain. Buoyed by last August's launch of Microsoft's Windows '95 software package, PC World's sales soared 110 per cent to pounds 262m, or by 30 per cent on a like-for-like basis.

Dixons has been gaining market share in the consumer PC market and now controls about 40 per cent. With retailers taking only a fifth of the total PC market in the UK, versus almost 40 per cent in the US, there's plenty of growth left for Dixons to go for.

Mr Clare promises more of the same winning formula over the next year. Half of the 350 Dixons stores still need to be refurbished, while the expansion of PC World still has a long way to go. Another 10 PC World Superstores will be opened this year, taking the total number of outlets to 36, still well short of a UK market capable of accommodating at least 60 stores.

Analysts were busy upgrading their forecasts yesterday with profits seen reaching at least pounds 175m this year, implying a p/e ratio in the high teens. While the quality of earnings is hardly enhanced by the size of its warranty income, which could represent a tenth of profits, the rating is not demanding for what is increasingly being seen in the City as a growth stock.

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