DSG hit by 10% fall in sales at its troubled Italian chain

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DSG International is planning to create a "substantial" general merchandise business on its dixons.co.uk electricals site, the retail group admitted yesterday as it warned that its struggling Italian chain would hurt its interim profits.

The warning, which comes ahead of the European electricals group's peak trading period, knocked 7 per cent off its share price despite signs it was gearing up for a bumper Christmas. Citigroup, its broker, trimmed its full-year profit figures by 4 per cent to £335m.

DSG predicted flat-panel, high- definition televisions would be its biggest selling product in its key third quarter. Laptops and satellite navigation kits are also expected to sell well, it added.

The company, which has converted all its Dixons high-street stores to Currys.digital, revealed it was expanding its specialist dixons.co.uk website into scores of new product lines including books, CDs, mountain bikes and games. John Clare, the chief executive, said: "Our ranges will grow. We have a brand name that is known for deals and good value and are not bound by any walls."

Christian Koefoed-Nielsen, at Panmure Gordon, said the strategic shift was a "danger flag being waved" at the likes of Argos, although he queried "how far they can stretch the brand into other areas".

In a trading update, DSG said group like-for-like sales for the 28 weeks to 11 November increased by 5 per cent, although its poor performance in Italy knocked its gross margins. It said interim profits would be in line with last year's £106.1m.

Mr Clare blamed the shortfall on Italy, where a weak economy, poor consumer confidence and intense price competition cut underlying sales at its UniEuro chain by 10 per cent for the period.

The group's UK electricals business grew underlying sales by 5 per cent. This included a 190 per cent year-on-year jump at its dixons.co.uk site, but masked a sharp slowdown at Currys, which analysts estimated saw underlying sales growth of 8 per cent in the first quarter almost grind to a halt in the past few weeks. PC World, its UK computing chain, increased like-for-like sales by 3 per cent.

Mr Koefoed-Nielsen said: "Is this as good as it gets from DSG? Despite strong trading numbers on the back of a strong produce cycle, they are having to work really hard to push profits forward."