A stark profits warning from the electrical goods giant DSG International yesterday provided the first snapshot of how retailers fared during the crucial pre-Christmas trading period.
DSG, the owner of PC World, Currys and Dixons, said sales during the final 11 weeks of 2007 had been poor and warned that it now expected full-year profits would be as much as 50m short of the City's expectations of around 300m. Its shares plunged 27 per cent.
Kevin O'Byrne, DSG's finance director, said: "Overall trading for this period, in which over half our annual profits are usually gener-ated, has clearly been disappointing."
The company's PC World business endured a particularly hard time, with sales down 10 per cent compared with 2006. DSG was also forced to cut its margins to persuade consumers to spend, and has made further price reductions in the post-Christmas period. Margins in the flatscreen television sector, where prices have fallen by 16 per cent, have been particularly tight.
However, a very poor performance from DSG's Italian retail computing business, where sales fell 11 per cent, was also a major factor in the profits warning. Retail analysts said DSG's difficulties did not necessarily give a representative picture of how the high street as a whole had performed last month, particularly since DSG was facing serious difficulties well before the Christmas period. Its first-half profits, unveiled in November, showed a 26 per cent decline.
"A good element of the problems at DSG may be company-specific," said Keith Bowman, an equity analyst at Hargreaves Lansdown stockbrokers. "The evident consumer trend to purchase electrical goods online leaves the group's store-based strategy looking vulnerable, and while management have developed an internet outlet the one major bright spot across the group the speed of development is questionable."
DSG's dismal trading update will pile pressure on John Browett, who joined the company as chief executive just a month ago. Mr Browett, who spent the first few weeks in his role in a series of meetings with City investors, faces calls for a much speedier move online particularly since sales at Dixons.co.uk were up 31 per cent during the last 11 weeks of the year and may also be forced to consider selling off DSG's Italian business.
"Management needs to do more than financial engineering to reposition DSG," said Christian Koefoed-Nielsen, a retail analyst at Panmure Gordon. "This is likely to take time, may cost money and asset writedowns, while there's no sign that deflationary pressures in its markets are easing."
DSG called yesterday for further interest rate cuts to ease rapidly declining consumer confidence. But it denied rumours suggesting it planned to close hundreds of stores and slash jobs.
DSG's shares fell 29.25p to 78p as investors worried the retailer might be forced to scrap its dividend.Reuse content