Retailers feel the chill after snow hits sales

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The Independent Online

Some of the high street's biggest names unveiled falls in underlying festive trading yesterday, as last month's heavy snow and cautious consumers gave many chains a Christmas they will want to forget.

On the busiest day for the festive trading updates, dubbed "Super Thursday," sales at the electricals group Dixons Retail, the bicycle retailer Halfords, the chocolatier Thorntons, the computer game specialist Game, and Argos-owner Home Retail were all in negative territory. Among privately-owned groups, the fashion chain New Look posted calamitous 9.1 per cent fall in revenues and the Co-operative Group said food sales fell 3.2 per cent.

Even the world's third biggest retailer Tesco, which operates in 14 countries, posted a fall in underlying UK sales, excluding both fuel and VAT, for the first time in 13 years.

But in a rare bright spot yesterday, Jacques Vert, the womenswear retailer, posted underlying sales up 3.1 per cent. However, overall, Christmas 2010 will be remembered for the snow and a widening chasm between the high street's winners and losers.

The entertainment group HMV and the maternity specialist Mothercare have, among others, blamed the dreadful weather for profit warnings.

However, retailers including the department stores John Lewis and House of Fraser, and Sainsbury's have enjoyed a barnstorming Christmas – at least in terms of sales growth. This suggests the snow may have been used as an excuse to disguise deeper structural weaknesses at some chains.

Certainly, yesterday was a gloomy one for Dixons Retail, the owner of Currys and PC World in the UK, which warned that its full-year profits will be at the "bottom end" of consensus forecasts of £100m to £110m. The update spooked investors and shares in Dixons Retail tumbled 2.38p to 21.35p.

The group, which also has operations in countries including Italy and the Nordic region, lost sales of £20m to the snow in the UK. But Dixons Retail lost a further £15m due a problem with its web platform that led to its websites being temporarily unavailable on the crucial days of 26, 27 and 28 December. John Browett, the chief executive of Dixons Retail, admitted the "glitch" had "hurt" the company.

Underlying sales fell by 4 per cent at Dixons Retail in the UK and Ireland for the 12 weeks to 8 January, despite strong sales of Apple products, 3D TVs and white goods ahead of the VAT rise.

On the consumer spending outlook, Mr Browett said: "We think the first half will be tough." But he added: "The economy is heading in the right direction... and in the second half the economy will be better than last year."

Sales also fell at its rivals Home Retail, which owns Argos and Homebase, and Game. But shares in both groups surged, as their performances came in ahead of City expectations.

Argos lost sales of up to £30m from the snow and its underlying sales, including online, fell by 4.9 per cent over the 18 weeks to 1 January. But Argos delivered online sales of £700m over the period, of which more than three-quarters came from "check and reserve," as consumers sought to ensure they got deliveries during the cold snap.

Terry Duddy, the chief executive of Home Retail said: "The convenience of the Argos model came through."

Sales at Homebase fell by just 1.2 per cent and Home Retail said full-year pre-tax profits would now be in the middle of previous guidance of between £250m and £275m. Investors showed little warmth to Halfords, however, after a 6.6 per cent plunge in underlying sales forced it to warn of profits at the lower end of the market range, which punctured its shares.

Meanwhile, in the grocery sector, Laurie McIlwee, the finance director of Tesco, said the impact of the snow on its "big out-of-town stores was quite severe," as new openings helped it post UK sales up by 4.2 per cent for the six weeks to 8 January.

He said the snow knocked about 1 per cent of Tesco's UK like-for-like sales, which actually rose by just 0.6 per cent. However, when the 0.8 per cent impact of VAT is accounted for, the grocer's UK sales were in negative territory. This put it behind the positive growth posted by Morrisons and Sainsbury's, which has been widely acknowledged as the Christmas grocery winner.

Analysts at Morgan Stanley said it was the "weakest UK trading" of the 13-year tenure of Sir Terry Leahy, the retailer's chief executive who steps down in March. But Mr McIlwee said: "We are definitely not behind Asda, we are neck and neck with Morrisons and a little behind Sainsbury's." Group sales at Tesco rose by 7.6 per cent over the period, driven by a strong international performance. It is forecast to deliver pre-tax profits of £3.58bn in 2010-11, according to analysts at Matrix.

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