DSG cautious on consumer outlook

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The Independent Online

European electrical goods retailer DSG International Plc said it did not expect its markets to recover before 2010 as it posted a drop in first-quarter underlying sales and profit margins and pledged to cut more costs.

"We are not expecting a quick recovery," chief executive John Browett told reporters.

"From what we can see from customers they are taking to heart the credit crunch and therefore I think it's going to be quite a while before we'll see anything from the market which helps us. Certainly we don't see any recovery this year or next year," he said.

Shares in DSG, which trades as Currys and PC World in the UK, Elkjop in the Nordic region and UniEuro in Italy, fell 5.2 percent to 50 pence by 0959 GMT, having hit 49-1/2p and valuing the firm at about 840 million pounds ($1.5 billion).

Like-for-like sales in the 16 weeks to Aug. 23 fell 7 percent on the same period last year, led by 12 percent declines in its UK computing and southern European operations, DSG said in a statement ahead of its annual shareholder meeting.

Analysts forecast a fall of between 4 percent and 8 percent.

Gross margin, a measure of profitability, fell 0.75 percent.

"This is a pretty dire trading update that highlights how tough things are out there," Kaupthing analysts said in a note.

Many European retailers are struggling as shoppers curb spending amid higher food, fuel and mortgage costs.

Earlier on Wednesday, Britain's Nationwide building society said its August consumer confidence index matched July's record low, while the European Union statistics office said July retail sales fell 2.8 percent year on year in the 15-nation euro zone.

Sellers of higher price discretionary items, like DSG, have suffered the most. DSG shares have slumped around two-thirds in value over the past 12 months and have underperformed the DJ Stoxx European retail index by almost 60 percent.

This led Browett to unveil a strategic review in May, promising to "transform the DNA" of the group with a focus on improving stores and customer service, developing its online business and cutting costs.

Making progress

He said the transformation, targeted to take three years, was making progress despite the tough economic backdrop and did not expect much change to analysts' year to end-April 2009 profit forecasts of 120 million to 130 million pounds.

Nick Bubb, analyst at Pali International, forecast DSG would make a first half loss and would have to hold second half like-for-like sales to make consensus full year forecasts.

"The UK economic outlook is grim and will be pulling like-for-like sales in the other direction," he said.

Browett also said the future of the group's underperforming Italian and Spanish businesses were still under review and denied press reports that a disposal process had started.

DSG said it had delivered its 50 million pound cost-cutting programme and was targeting an additional 25 million pounds of savings this year.

Browett played down the threat to DSG of U.S giant Best Buy Co entering Europe next year through its joint venture with Carphone Warehouse Group Plc.

"Unless they (Best Buy) do something very dramatic we only expect to see a handful of stores by the end of next year," he said.

DSG said its chairman John Collins would retire from the board after the 2009 shareholder meeting.

(Additional reporting by Mark Potter; Editing by Louise Ireland)