Dixons chief warns of 1990s-style meltdown

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The Independent Online

John Clare, the chief executive of Dixons, warned yesterday that he saw no respite for the retail sector, which appears to be heading for a meltdown to rival the consumer slowdown of the early Nineties.

John Clare, the chief executive of Dixons, warned yesterday that he saw no respite for the retail sector, which appears to be heading for a meltdown to rival the consumer slowdown of the early Nineties.

His comments came as Dixons revealed like-for-like sales were deteriorating across its core UK businesses, dragging the group's underlying sales into reverse. Dixons also announced it was axing a long-standing partnership with MFI, in a further blow for the struggling furniture group.

Mr Clare warned in November that retailers would struggle and reiterated his gloom yesterday, admitting he saw more danger of trading deteriorating than improving. "We are budgeting cautiously with the view that it won't get any better and could get worse," he said. Analysts expect underlying sales across the group to fall by 2 per cent during the next 12 months.

Dixons said underlying sales in the UK fell 2 per cent in the six months to 30 April, dragged down by big sales declines at PC World and The Link. Group like-for-like sales were 1 per cent lower, benefiting from the company's international exposure. It gets one-third of its sales from businesses overseas.

All of the group's chains in the UK had a tougher final quarter. Like-for-like sales growth at Dixons slowed to 5 per cent from 9 per cent over Christmas, and to 2 per cent at Currys from 6 per cent. PC World and The Link, its mobile phone retailer, suffered from price deflation of about 20 per cent, Mr Clare said. Underlying sales during the past six months fell by 8 per cent at PC World and 9 per cent at The Link. Mr Clare said he hoped to buy out O 2, Dixons' partner in The Link.

Despite the group's glum outlook, analysts were reassured by Dixons' commitment to cut costs and protect its gross margin. Shares in the group rose 3.75p to 145.25p on relief that it still expects to hit the City's profit expectations. Analysts at Citigroup trimmed their profit forecast for the year to April 2006 by £5m to £325m.

Mr Clare said Dixons was dissolving its partnership with MFI because "we weren't satisfied with our returns and nor were they". He plans to replace MFI's Hygena kitchens with a wider range of white goods, including more built-in appliances. MFI said shutting the outlets, which employ 400 staff, would cost £5m and wipe £3m from its operating profits this year.

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