Bloomberg News

Dixons Sees Good Start as Profit Tops Estimates

June 21, 2012

Dixons Retail Plc (DXNS), the U.K.’s largest consumer electronics retailer, said it has had a “good start” to this fiscal year after reporting earnings that beat analysts’ estimates.

Underlying pretax profit fell 17 percent to 70.8 million pounds ($111 million) in the 12 months through April 28 from 85.3 million pounds a year earlier, the Hemel Hempstead, England-based company said today in a statement. That compares with the median estimate of 68 million pounds. The company in May forecast profit to be at the top end of estimates of 65 million pounds to 70 million pounds.

Dixons’ domestic business, which includes the Currys and PC World chains, has benefited from the exit of competitors such as Best Buy Inc. and a push toward a more service-led approach such as its KnowHow program and expanded Web offering. Same-store sales rose 5 percent in the fourth quarter and were down 3 percent in the full year.

“We have to be convinced that any improvement in trading will convert into higher profitability and at current levels the stock looks fairly valued,” said Freddie George, an analyst at Seymour Pierce with a hold recommendation on the shares. He noted that the stock had risen more than 20 percent since the beginning of the week.

The shares fell 2.6 percent to 15.59 pence at 9:34 a.m. in London trading. The stock has risen 59 percent this year.

Pixmania Division

Chief Executive Officer Sebastian James outlined a three- point plan to drive growth via a multichannel offering, exploiting scale across the group and building the company’s share to become the market leader in Turkey, Italy and its central Europe businesses.

A weaker performance in southern Europe and the online Pixmania division offset gains in the U.K. and Northern Ireland, Dixons said.

Pixmania, which posted an underlying operating loss of 19.8 million pounds, suffered from declines in France, one of its larger markets, and supply problems with cameras following floods in Thailand and the Japanese tsunami. The CEO said he is taking action at the business, citing a re-think on unprofitable categories and removing costs by measures such as an exit from its “glamorous Paris office.”

Internet Competition

James said he is tackling budget-priced Internet competition by working with suppliers who like the company’s multichannel approach, selling “complete solutions” such as laptops with computer software, differentiating itself with service and continuing to be more efficient.

Its price differential with online rivals has fallen from 22 percentage points three years ago to 6.5 percentage points last week, James said.

“If you bought a 100-quid small-screen telly off us last week you wouldn’t have found any competitor on average who would have been able to sell it to you for less than 104 quid,” he said. “So there are lots of areas where we are aggressively pricing.” Quid is slang for pounds.

In Greece, where the company’s Kotsovolos chain is market leader, it’s gaining market share “quite rapidly” while the overall market has fallen 55 percent in the last three years. “I think that market will come right,” James said. “That business is a valuable business for us.”

Italy is an “easier market” but its strategic position is smaller, he said.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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