Retailers fear worst Christmas for a generation

Homebase, Debenhams, Burton and DSG International, the electronics retailer, are all likely to show just how bad trading is on the high street when they report results this week.

Analysts are now predicting the worst Christmas since the early 1980s as the public rein back spending as fears for job security grow.

Shares in DSG, which owns Currys, Dixons Online and PC World, crashed to 27p on Friday, a two-decade low, on fears that the retailer is at risk of breaching its banking covenants. The company is due to give a trading update on Thursday.

Andrew Hughes, analyst for UBS, said on Friday: "We know its banking covenant is a fixed-charge cover on a revolving credit facility which it dips into around October." Mr Hughes said it is unlikely DSG will pay a dividend for the next two years.

John Baillie, Société Générale analyst, added: "It is all doom and gloom for DSG, whose falling share price reflects concern about its financial position. It has a poor balance sheet and cash flow, and is now a penny stock."

According to Mr Baillie, the American electronics retail giant Best Buy will further damage DSG's sales when it enters the UK market with $1bn in disposable cash. "Best Buy represents a major medium-term threat and it has expressed its intention to be number one in the UK electronics retail."

Elsewhere on the high street, Debenhams, the second-biggest department store in the UK and part-owned by the troubled Icelandic Baugur group, has suffered a share price slump of 66 per cent to 31.75p over the year, although analysts expect it will reduce debt by £100m this year. Debenhams' like-for-like sales are down by 0.9 per cent, though that is better than rival M&S. Debenhams is likely to cut back its dividend as full-year profits, out on Tuesday, are expected to be down by 17 per cent.

The gloom comes after John Lewis reported last week that turnover at its 27 stores fell by 4.8 per cent week on week, while underlying sales at Waitrose were down by more than 3 per cent. Arcadia, the Topshop to Burton retail chain group owned by Sir Philip Green, is also expected to give a trading update this week.

In another move, the sports retailer JJB, which announced a £10m loss in its half-year profits last month, has come under threat of a takeover by Sports Direct this weekend. Sports Direct bought 4.7 per cent of JJB shares after the markets closed on Friday and admitted it also owns 15 per cent of JJB through contracts for differences.

The Office for National Statistics has warned, ahead of its monthly report on Friday, that retail sales figures for September may not accurately reflect the state of UK high streets. So it will publish a margin of error in the figures. The warning is an admission that its retail sales data may not be a reliable guide to retail trends – something economists have long suspected. Moody's forecast of a 1.8 per cent year-on-year increase in sales for September is unlikely to show the real effects of market volatility and falling share prices on major brands.