LOSSES and provisions for its unprofitable US business Silo were
responsible for a drop in annual profit at Dixons, the electrical
retailer, from a restated #50.1m to #33.5m.
Dixons lost #22.4m in the US last year and has set aside #36.2m in an
exceptional provision to cover restructuring of Silo. This will cover
the costs associated with the closure of more than 45 stores.
The extent of the problems in the US business took the City by
surprise, prompting many analysts to downgrade their profit forecasts
for the current year. Dixons' shares short circuited, dropping 15p to
195p. Although there is thought to be scope to transfer much of the
success of the UK business into the US it is likely to take some time
before this is translated into success in profit terms. Once again
another UK retailer has tried to run before they can walk in America.
The poor US performance overshadowed the fact that the UK business is
going from strength to strength. The move of the Curry's business to
larger out-of town superstores is proving very successful. It was
Dixons' best performing trading format with sales up 15% last year. This
enabled overall group sales to advance by 10% to #1323.9m. UK retailing
profit before tax and interest was #77.6m compared with #71.9m
previously.
The retail profit included a contribution of #700,000 -- down from
#1.7m -- from Supasnaps which was sold in April and #200,000 profit from
PC World Group which was acquired in February. PC World's sales through
its four London-based superstores were #16.5m. Dixons intends to expand
PC World nationwide with three new stores due to open in three cities
outside London in the current year.
For the first time in three years, there was significant growth in the
electricals market, with a particularly marked advance in white goods.
Sales of computers and computer games hardware and software in Dixons
increased substantially, notably over Christmas.
Although there are signs of a recovery in demand in the UK electrical
retailing market this is often at the expense of margins. This confirms
analysts' concerns about the state of the market. Mark Josefson at
brokers Panmure Gordon pointed out that Scottish retailer Clydesdale was
expected to come to market earlier this year but abandoned the issue.
The reason given was that although sales were in line with expectations,
profits were down because of the impact of heavy discounting.
With margin pressure being felt throughout the UK retail industry,
this upset from Dixons is likely to focus attention once more on the
increased competitive pressures in the marketplace for all sorts of
goods. Indeed Dixons' chairman Stanley Kalms said that while the groups'
like-for-like sales since the year-end on May 1 are ahead of last year,
gross margins are under pressure. This is also the case in the Silo
business.
Mr Kalms said the main challenges for the group were to maintain the
progress in the UK.
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