Currys owner DSG put out its second profits warning in two months yesterday, prompting fears that it could be about to slash its dividend.
Shares in DSG, an electrical goods retailer whose brands include PC World and Dixons, now a purely online business, fell 8.5% as it said a "challenging" business environment means its full-year profits would be between £200m and £210m. At a previous profit warning in January, DSG signalled underlying earnings would be around £250m.
The company, which operates 38 Currys stores in Scotland, put the blame firmly on cash-strapped consumers seeking bargains as it reported like-for-like sales down 1% in the 25 weeks to April 5. Gross margins were down 0.8% as it cut prices to entice customers.
Chief executive John Browett said: "Whilst like- for-like sales patterns are broadly in line with those we reported over the Christmas period, it is clear that customers have become increasingly promotion and deal-driven, impacting gross margins."
The company said that in the UK, sales of items such as flat panel televisions, laptops, fridges, freezers and washing machines had been good, particularly over Easter, as it pushed promotional prices.
However, it had struggled outside this area, especially in its computing division.
Its woes prompted several analysts to predict the company is is about to slash its dividend to conserve cash in difficult times. Fellow retailer Kingfisher, owner of the B&Q home improvement chain, did just that at the end of March.
Analysts are widely anticipating further negative news from the company in future, with Bear Stearns cutting its 2008-09 pre-tax profit forecast to £125m. This puts pressure on Browett, operations development director for Tesco until he took on the DSG job in in the autumn, to deliver some compelling answers when he presents the first phase of the business review he has been carrying out on May 15.
The former head of tesco.com is expected to address the challenges from internet retailers and supermarkets and, in particular, how its PC World chain, which analysts think looks especially vulnerable, can respond to that.
Some analysts have called on the company to sell off a number of PC World stores to unlock their property value.
Browett said: "Going forward it is important that we increase our focus on delivering the value, choice and service that our customers demand, particularly in the prevailing difficult economic environment."
DSG shares have fallen from 107.25p on January 2 to 59.75p yesterday, down 5.5p on the session.
The firm also reported disappointing figures from Italy and Spain although it said the Nordics, Greece and Central European businesses all delivered "satisfactory performances".
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