Christmas trading is crucial for any retailer. For Dixons, the electricals shop that also owns Currys, this festive period will be watched especially closely
Last Christmas Dixons found itself in the unenviable position of having too few gift-type products in its shops. Although hindsight affords wonderful perspective, it is hard to understand why the company found itself in this plight. It is hardly as if it did not foresee that Christmas was coming. And it surely does know that Britons have a touching tradition of exchanging presents at this time of year.
The good news is that having got into such a pickle last year, Dixons is unlikely to repeat the mistake. Unfortunately, that is where the good news stops. Admittedly, it would be wrong to read too much into the pre-Christmas trading statement posted yesterday because it relates to a relatively quiet period and the sales figures are up against tough comparatives. But flat like-for-like sales for the UK still paint an uninspiring picture.
Similarly, and worryingly, the long and drawn-out investigation into service contracts, sometimes called extended warranties, casts a shadow over Dixons. The Office of Fair Trading and the Competition Commission have put their two-pennyworth in already. At the start of December, Patricia Hewitt, Secretary of State for Trade and Industy, will rule on how the sale of these contracts should change. The timing could not be worse.
Investors may be concerned, moreover, about the consumers’ appetite for shopping this Christmas. It is at least possible that the voluble warnings about the dangers of profligate spending “” sounded by luminaries including the Governor of the Bank of England “” will lead consumers to keep their wallets and purses closed.
Fears about the outlook for Dixons have driven the share price down in recent months. The shares now return a yield of 5.5 per cent, which makes them look positively cheap. If you believe Dixons will pull itself together, you will find the share price attractive at the present levels. But the best and most prudent advice might be to sit on your hands until hard evidence of success emerges. This may mean missing the first part of any gain. But by the same token you will miss the pain if there is no gain forthcoming. Avoid for now.
Excerpt from The Times Online