Retailers report dire pre-Christmas results

DSGi and Home Retail say shoppers waited for the sales
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The Independent Online

The depth of the malaise hitting general merchandise retailers was laid bare yesterday, when two of the UK's biggest store groups posted tumbling underlying sales, as consumers slashed their spend on big ticket items.

DSGi, the owner of Currys and PC World, said UK consumers had deferred buying big ticket items until the post-Christmas sales, and warned that trading conditions in Spain and Ireland had been even worse. Home Retail Group, the company behind the catalogue giant Argos and Homebase, posted some of the worst sales for the Christmas quarter in its history, despite the DIY retailer's kitchen sales getting a boost from the collapse of MFI at the end of 2008.

The updates from two of the sector's biggest beasts on a hectic day – dubbed Super Thursday – of retail results reinforced the view that trade in the run-up to Christmas was dire, and that shoppers, who left their spend until the January sales, were the real winners.

John Browett, the group chief executive of DSGi, said the trading patterns it was witnessing were following the "normal patterns" of previous recessions dating back to 1929, but added: "It is not a slump of biblical proportions." The company is planning for the recession to last into the first half of 2010.

For the 12 weeks ended 10 January, DSGi's group like-for-like sales tumbled by 10 per cent. Gross margins across the group slipped by 0.8 per cent, as it sold a greater proportion of products in the sales, and a higher mix of lower-margin TV and laptops.

At its UK and Ireland electricals business, including Currys, underlying sales fell by 12 per cent, while the UK computing division, mainly PC World, fell by 13 per cent.

Mr Browett said that sales in November and the first half of December had been "so slow it was slightly concerning" in the UK, as customers told staff they were "waiting for the sales". However, over the two weeks to 10 January, DSGi's group underlying sales rebounded, to be up 2 per cent, including positive growth at PC World and Currys. The post-Christmas bounce did not extend to its struggling Irish and Spanish businesses.

"What we are seeing is that Ireland and Spain is significantly worse. [For example], Ireland is a far more serious recession because they have got a big part of their economy around construction," said Mr Browett.

Assad Malic, the Credit Suisse analyst, said: "They are clearly factoring in quite a negative scenario for this year of single to high-digit like-for-like [declines] for the group."

Mr Browett said that DSGi had held its nerve by not launching discounting in the run-up to Christmas, despite the poor trading conditions. "If we had gone on sale early it would not have made much difference to us."

Sales of white goods, such as washing machines, were "depressed" over the period, said Mr Browett, largely as a result of the weak housing market. He said that sales of netbooks had been strong over the festive period and that buoyant demand for flat-screen TVs had "surprised us before Christmas".

DSGi said it plans to slash a further £20m from its cost base this year, taking measures such as not replacing some staff and cutting marketing spend. This will bring its total savings for the year to the end of April to £95m. Ian Macdougall, the Blue Oar analyst, said: "No-one expected any good news from DSGi today and they didn't get any, other than the cost line."

It was a similar story of woe at Home Retail Group's Argos. For the 18 weeks to 3 January, the catalogue giant's like-for-like sales fell by 7.5 per cent and its gross margin was down by 1.25 percentage points. Terry Duddy, chief executive of Argos' parent Home Retail Group, said that the lower margin reflected the higher sales of products on promotion and also the strong sales of lower-margin games consoles and video games, such as Nintendo Wii. "We held our market share," he said.

Mr Duddy said Argos's underlying sales increases in the week before Christmas and immediately after were "substantially higher" than 2 per cent. "If I reported five weeks [of trading, instead of 18], I would have probably got out with positive numbers," said Mr Duddy.

Homebase continued to struggle and posted underlying sales down by 10.2 per cent. The DIY retailer's gross margin fell by 50 basis points, reflecting higher promotional activity. While sales of a number of big ticket items, such as furniture, were weak, Homebase delivered robust sales of energy-efficient products and kitchens. "We benefited from MFI going under," said Mr Duddy.