Dixons hit by mobile phones slowdown

Christmas sales deliver plenty of cheer for food and fashion retailers, but Britain's biggest electrical chain spoils the party

Dixons, the electrical retailer, expressed caution over the outlook for UK consumer spending yesterday as the group reported a fall in like-for-like sales over Christmas due to a sharp decline in sales of mobile phones.

John Clare, chief executive, said: "I'm a bit cautious about the next 12 months. Interest rates may start edging up and there may be further fall-out in the Middle East which could affect economies worldwide. But unlike the fashion retailers we trade in a market that is fuelled by new product and innovation and I don't think there's been a more exciting time than now."

Dixons said mobile phone sales in December were down 50 per cent on the previous year and had been weakening since May. However, the company added that this should be compared with the "exceptional performance" of last year when network operators were offering huge subsidies on the cost of mobile handsets.

Dixons shares fell nearly 5 per cent to 228p as the group reported a 0.6 per cent fall in underlying sales for the eight weeks to 5 January. Interim profits for the six months to 10 November fell to £87m from £90.8m the previous year.

The slump in mobile phone and personal computer sales in the first half outweighed strong gains in DVDs, digital camcorders and widescreen digital televisions. Even white goods, such as fridges and washing machines, enjoyed 9 per cent underlying growth, double the normal level.

Dixons said PC sales had started to recover but added that it was too early to see if this would continue. Like-for-like sales in the group's PC World chain were down 2 per cent on the previous year in the first half but are now in positive territory, the group said.

The company added that if mobile phone sales were stripped out, like-for-like sales in current trading were up by 6 per cent.

Mr Clare said the penetration of DVDs into UK households was now 15 to 20 per cent with entry price models now available at £89. Recordable machines, currently priced at £900, would give the market another push as they become cheaper, he added. The launch of the Microsoft XBox in March should boost the computer games market which is already booming thanks to the success of Sony's PlayStation 2.

However, some analysts questioned whether the new technology boost meant Dixons should have delivered a better performance. Merrill Lynch downgraded its stance on the shares from "neutral" from "buy".

Profits in the continental European division halved to £7m due to start-up costs in France and Spain. Dixons said the total investment overseas had been £14m in the first half. The group's first stores in Central Europe are due to open in Prague and Budapest under the Electroworld name this year. Mr Clare said this was "as far as organic investment goes" before the markets become profitable.

Mr Clare said he was monitoring developments at Kingfisher, the rival retail group, in case its overseas electricals businesses should become available. "If anything were to happen we would be interested." Dixons has long coveted Darty, Kingfisher's French electricals business.