Dixons issues second warning in two months after sales slump 11%

Currys and PC World owner Dixons Retail issued its second profit warning in two months yesterday, providing fresh evidence that cash-strapped shoppers are cutting back on big- ticket purchases.

The group, which outlined plans to cut costs further, said like-for-like sales at UK and Irish stores slumped 11 per cent in the 11 weeks to 26 March.

Dixons Retail said profits before tax and one-off items for the year ending 30 April are now likely to come in at about 85 million, against City forecasts in a range of 85m to 109m. Those numbers had already been trimmed following the retailer's profit warning in January.

Chief executive John Browett admitted that the VAT hike to 20 per cent had added to an already tight squeeze on consumer finances in the UK. He said the group would focus on self-help measures to try to offset the sales pressure without impacting its store revamp programme.

However, the retailer is weighing plans to shut its 34-strong chain across Spain in a move that would affect 1,200 staff. It has launched a consultation process as it reviews the business, which is making losses of about 5m a year.

Browett said he expected consumer confidence to be fragile through much of 2011, predicting only "modest profit growth" in the group's 2011-12 financial year.

New products, such as Apple's second-generation iPad and Nintendo's 3DS, were selling well, but consumers were backing away from big-ticket items, he added. "In a difficult market we have to do what we can to help ourselves," said Browett. "In the UK where we have this period of tough trading, we have to show real grit and determination."

The group said it will focus its store overhaul programme on the most critical stores and rein in investment in systems, which will help reduce costs of the revamp by about 40m.

It still aims to overhaul 55-60 stores in the UK, including opening 15-20 megastores, during 2011. The firm is looking to cut annual costs by 50m for the next three years, extending a previous two-year target.

Seymour Pierce analyst Kate Calvert said: "Like-for-like sales have dropped off a cliff."

A number of high street names have reported a recent fall in trading, raising concerns that a fragile economic recovery could be derailed.

In January, Kesa, which owns the Comet electricals chain, braced investors for weaker full-year profits after a 7.3 per cent slide in UK sales between 1 November and 18 January.