The owner of Currys and PC World issued its second profits alert in as many months today after worsening trading conditions saw sales tumble 11%.
Dixons Retail said the like-for-like sales plunge across the UK and Ireland came as consumer confidence weakened more than expected following a difficult Christmas.
It warned underlying profits for the year to April 30 were now expected at around £85 million and outlined an action plan to deal with the dire trading, including potentially pulling out of Spain and further cost cutting across the group.
Dixons said it saw little option but to close its 34-strong chain across Spain - a move that would affect 1,200 staff.
It is now launching a consultation process as it reviews the business, which is making losses of around £5 million a year.
Dixons is also ramping up its cost-cutting by another £50 million for the next three years, but said there would be no new store closures planned in the UK, where it employs around 20,000.
Its sales decline for the 11 weeks to March 26 marks a significant deterioration on the 4% slide seen over Christmas, although it believes it outperformed even bigger falls in the wider consumer electronics market.
Dixons said it was unlikely trading conditions would improve as household budgets come under pressure.
John Browett, chief executive of Dixons, said the VAT hike to 20% had added to an already tight squeeze on consumer finances in the UK.
He added the group would focus on self-help measures in the UK to try to offset the sales pressure without impacting its store revamp plans.
"In a difficult market we have to do what we can to help ourselves," he said. "In the UK where we have this period of tough trading, we have to show real grit and determination."
Shares dropped more than 11% on today's lowered profit guidance, which compares with analyst expectations for between £85 million and £109 million - which had already been trimmed following the retailer's profit warning in January.
The group said it will focus its store overhaul programme on the most critical stores and rein in investment in systems, which will help reduce costs of the revamp by around £40 million.
It still aims to overhaul 55-60 stores in the UK, including opening 15-20 megastores, over 2011.