Dixons blames cuts for profit warning

Electrical store’s announcement is latest indicator of a major fall in consumer confidence Fresh evidence of a major fall in consumer confidence emerged on Wednesday as Dixons issued a profit warning after suffering a sharp drop in UK sales. The VAT rise and government cuts were both to blame, the electrical retailer said, as it admitted that like-for-like sales had decreased by 11% in UK and Ireland in the last 11 weeks. Profits for the year to the end of April will be about £85m rather than the £105m analysts had expected. The group is also considering pulling out of Spain, putting 1,200 jobs at risk. Shares in the company plunged 11% as investors digested the poor trading update. Chief executive John Browett said the launch of the second generation iPad had been one bright spot in the last 11 weeks, selling out in stores in two hours, but other areas were struggling: “We know that people are a little bit worried until the public expenditure cuts are confirmed.” Browett suggested the VAT rise in January had been significant. Like-for-like sales were down just 4% over the last 13 weeks, incorporating the two weeks before VAT went up, suggesting customers bought big-ticket items before the tax hike. The bad news at Dixons came after Thomas Cook’s warning yesterday that UK demand for foreign holidays had dropped sharply and official figures showed the first fall in real household disposable income for 30 years . Dixons said: “At the time of the group’s trading statement in January, trading conditions were expected to remain difficult through the first half of the year, with consumer sentiment improving as we moved towards Christmas 2011. However, with consumer confidence even weaker than expected like-for-like sales in the 11 weeks to 26 March 2011 are down 11% in the UK and Ireland. In this more challenging trading environment, the business has focused on cash gross profits and has held gross margins flat year on year.” It added that the low levels of consumer confidence were likely to continue. “With continuing pressure on household budgets, it is difficult to see a significant improvement in this pattern of trading in the short term and the group is now planning on the basis that the consumer environment remains relatively subdued and that the electricals market overall shows a modest decline in the group’s 2011-12 financial year.” Dixons Retail Retail industry Recession Economics Profit warnings Alex Hawkes guardian.co.uk

Posted by on March 30, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.