Dixons warns of slowdown ahead of Christmas period

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The Independent Online

Dixons, the electricals specialist, spooked the retail sector yesterday when it admitted its sales had slowed and warned margins would come under pressure over the key festive trading period.

Dixons, the electricals specialist, spooked the retail sector yesterday when it admitted its sales had slowed and warned margins would come under pressure over the key festive trading period.

John Clare, the chief executive, said: "The rate of growth we've seen has slowed as the half has gone on, in particular over the past few weeks. We are feeling more cautious about the prospects for Christmas." He added: "The mood of the consumer has changed in the past few weeks."

His comments added to the mounting air of gloom on the high street, prompting investors to dump shares in retail stocks. Dixons' shares led FTSE 100 fallers, dropping 5 per cent to 158.5p, but the sell-off was across the board. GUS, the Argos owner which reports interim figures today, fell 22p to 870.5p, Kingfisher slipped 4.25p to 298.75p, Boots dropped 16p to 637p and Next lost 10p to 1651p.

Analysts at Dresdner Kleinwort Wasserstein trimmed their full-year profit forecast by 6 per cent to £344m, saying: "[The] statement is further evidence of a more widespread slowdown in UK retail given the recent interest rate rises and general housing market slowdown." Another retail analyst said: "A business that's well run has confirmed that consumers are slowing down."

Two years ago Dixons had a disastrous Christmas, shocking investors with a profits warning in January. Yesterday it said like-for-like growth sales in the UK, where it owns the Dixons, PC World, The Link and Currys chains, had slowed from 6 per cent during the first 28 weeks of its year to 4 per cent during the past four weeks. In September, underlying UK sales rose 7 per cent. Total group sales, which include outlets across Scandinavia, Italy and Hungary, rose 9 per cent during the period.

But it was the accelerating fall in gross margins that set alarm bells ringing in the City. Gross margins fell 70 basis points during the 28 week period - and by 120 basis points during the past 10 weeks.

Mr Clare said: "If there is a softer Christmas it will hit margins by at least as much if not more than sales because people have already bought the stock." He said there were signs of "a lot of panic" setting in among rivals, who are already dropping prices. "It could turn out to be a hell of a bargain Christmas for consumers if retailers have overstocked," he added.

Last week, the British Retail Consortium said October had been the worst month this year for the high street. Sales of big-ticket items, such as widescreen televisions and furniture, led the fall.

Mr Clare said: "Over the past few weeks non-food retail sales have been weaker and it is likely, in such a scenario, that big-ticket products will be hit more than low ticket." He blamed the softer housing market and publicity about pensions for the "dent" to consumer confidence.

The group said underlying sales at its Dixons chain rose 3 per cent, 9 per cent at Currys and 8 per cent at The Link. At PC World they were up 3 per cent.

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