UK weakness forces Dixons to cut costs

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Dixons Group said on Wednesday it would cut costs in response to falling profit and tough trading conditions in the UK.

The electrical retailer also announced plans to change its name to DSG International to reflect its march into overseas markets.

John Clare, chief executive, said dropping the 68-year-old name was an ?emotional moment? but a necessary change given that Dixons, the UK chain floated in 1962, accounted for less than 10 per cent of group sales.

Mr Clare also insisted that Dixons Group was still committed to the Dixons chain despite its ?issues?. The chain is fighting to stave off fierce competition from supermarkets and grappling with falling gross margins, which dropped by 0.6 per cent over the year.

Trading in the UK businesses ? Dixons, PC World, Currys and The Link ? has also been tailing off, moving into negative territory in the fourth quarter. Weakness in the UK, which accounts for two-thirds of group sales, helped push pre-tax profit down 8 per cent to ?337m in the year to April 30 despite overall group sales rising 8 per cent to ?6.98bn.

Dixons said it was cutting ?30m from group costs this year in an effort to improve underlying performance. In the UK, the retailer could see up to 800 job losses through the closure of two distribution centres and outsourcing of back-office functions ? possibly to developing countries, although Mr Clare declined to comment.

However, it also admitted that cost savings would be offset by rental increases of ?27m in the UK, adding that Dixons planned to leave 12 edge-of-town retail parks because of rent increases.

Overall, sales at Dixons fell 14 per cent to ?688m, although underlying sales rose 4 per cent on the back of high street store closures in the previous year.

Mr Clare said rising costs combined with an ?uncertain? outlook on consumer spending would lead to lower profit in the current year than last year.

Both house brokers, Cazenove and Citigroup, trimmed forecasts with the former cutting 3 per cent to ?325m and the latter moving down 2 per cent to ?318m.

The retailer, which trades in 13 overseas markets across Europe, said the international business had performed well except in Italy, with overall sales up 23 per cent to ?2.16bn, or up 1 per cent on an underlying basis.

The retailer has accelerated its international expansion in light of a more difficult home market. It will enter Poland and Portugal this year and has also signed an agreement to move into Russia and Ukraine with a local operator.

The final dividend of 6.22p gives a total dividend of 8.05p (7.32p). Earnings per share fell 13 per cent to 12.6p. Mr Clare said he had no intention of cutting the dividend in the current year.

Dixons shares rose 4?p to 159?p on Wednesday.

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