The sigh of relief that blew through the City when Dixons released its latest sales figures yesterday added £170m to the electrical retailer’s market value. Things are not as bad as feared. Sales are not falling, profits are rising. But it may turn out to be a small mercy.
In the 18 weeks to 6 September, the first of its financial year, sales at stores that have been open more than a year were up 1 per cent on the same time last year. The company’s overseas operations – which include PC City shops in France and Spain, Elkjop in Scandinavia, and ElectroWorld in central Europe – are growing sales at 3 per cent, but the UK is flat.
Flat is okay, given that sales were running some 7 per cent down in the UK last time we heard from Dixons, but that was against a period last year when football fans were investing in big TVs on which to watch the World Cup. The heatwave did cause a dip in sales, but they have come back strongly since, with computers staging a notable recovery, along with digital cameras and camcorders.
The risk remains, though, that the UK consumer will cut back on such luxuries, as concerns over debt levels, future interest rate rises, tax increases and an upward tilt in unemployment conspire to bring the curtain down on our extraordinary spending spree.
Dixons is proceeding cautiously in Europe, but is yet to really prove itself overseas. The profitability boost boasted yesterday may be a one-off, the result of the overhaul prompted by January’s profit warning. And overhanging everything, the Competition Commission’s plans to reduce profits from the sale of extended warranties, due before Christmas.
We said sell Dixons shares last November and while they quickly lost half their value they have since rebounded strongly. This relief rally has again taken them to levels (13 times forecast earnings for the current year) which do not take account of the risks. Avoid.
>From The Independent