* UK/Ireland underlying sales down 11 pct in past 11 weeks
* Sees year underlying profit around 85 million pounds
* Sees consumer confidence staying fragile in 2011
* Likely to exit Spain; will limit capex and cut more costs
* Shares fall 18 percent
(Adds detail, economist comment, Breakingviews link)
By James Davey and Mark Potter
LONDON, March 30 Dixons DXNS.L, Britain's No.1
electricals retailer, served up a profit warning and gloomy
forecast for 2011-12, adding to evidence cash-strapped UK
shoppers are cutting back massively on non-essential spending.
Shares in Dixons, which runs the Currys and PC World chains,
fell 18 percent on Wednesday after it said underlying sales at
British and Irish stores slumped 11 percent in the 11 weeks to
"Like-for-like sales have dropped off a cliff," Seymour
Pierce analyst Kate Calvert said.
British consumers look increasingly unwilling to spend as
muted earnings growth and higher inflation, fuelled by January's
rise in VAT (sales tax) and higher oil and food prices, bite
into real incomes. [ID:nLDE72N0WB]
They are also worried about job losses and welfare
reductions related to government spending cuts, as well as the
prospect of higher interest rates. [ID:nLDE72L0TT]
"This is just the short-term stuff around (a) tough market
while people are getting through the public expenditure cuts,"
said Dixons chief executive John Browett, who said the firm was
trading ahead of the wider market and its recovery plan working.
"We do not believe this (profit warning) means anything for
the structure of the industry or how we should operate."
Browett expected consumer confidence to be fragile through
much of 2011-12 predicting only "modest profit growth".
Cutting-edge new technology, such as Apple (AAPL.O) iPads
and Nintendo 7974.OS 3DS devices, were selling well, but
consumers were backing away from big ticket items, he said.
Dixons, Europe's No.2 electricals retailer behind German
group Metro's (MEOG.DE) MediaMarkt-Saturn, detailed four
measures in response to the worsening trading environment.
It said it would likely exit a tough Spanish market, where
it trades from 34 stores, employing 1,200; would reduce capital
spending to no more than 160 million pounds ($257 million) in
2011-12; focus on cash generation; and cut annual costs by 50
million pounds for the next three years.
Numis analyst Andrew Wade said the plan "reads more like a
proposal to the banks than a strategic review".
Dixons expects net debt of about 250 million pounds at its
April year-end but plans to raise 55 million pounds from the
sale of a Swedish warehouse.
A string of British retailers have reported a downturn in
trading since the start of the year, raising fears a fragile
economic recovery could be derailed.
Britons have been economising on food, traditionally the
most resilient area of spending, and Thomas Cook (TCG.L),
Europe's No. 2 travel company, said they also were cutting back
on foreign holidays. [ID:nLDE72S1PS] [ID:nLDE72R1BG]
Earlier this month, Home Retail HOME.L, Britain's biggest
household goods retailer, issued a profit alert. [ID:nLDE7270A4]
Separately on Wednesday, the Co-operative Group, Britain's
biggest mutual retailer, said it did not expect a recovery in
consumer spending until next year, while a Confederation of
British Industry survey said the underlying trend for retail
sales remained weak. [ID:nAHLTEE7F9] [ID:nLDE72T05D]
"Given that consumer spending accounts for some 65 percent
of GDP, this is worrying for growth prospects and something that
the Bank of England is thinking very carefully about as it
agonises over whether to raise interest rates," said IHS Global
Insight economist Howard Archer.
For a Reuters Breakingviews column on UK consumer hits a
brick wall, click on [ID:nLDE72T0KZ]
Dixons shares, which have lagged the STOXX Europe 600 retail
index .SXRP by 50 percent over the past year, were down 17.55
percent at 13.81 pence at 1408 GMT, valuing the company at about
491 million pounds.
Shares in rival Kesa Electricals KESA.L, owner of the
Comet chain, were down 4.5 percent.
Dixons, which also runs Elkjop in Nordic countries, UniEuro
in Italy and Kotsovolos in Greece, said profit before tax and
one-off items for the 2010-11 year was likely to be around 85
million pounds. Analyst forecasts were in a 85-109 million
pounds range, according to the company, while the median
estimate was 105 million, according to Thomson Reuters I/B/E/S.
(Editing by Dan Lalor and Hans Peters)
($1 = 0.6225 pound)