Jan. 12 (Bloomberg) -- Dixons Group Plc, the U.K.'s largest consumer-electronics retailer, said it remains on track for an increase in annual profit after demand for MP3 music players and LCD televisions fueled growth in holiday sales. The shares rose.

Pretax profit for the year ending in April should be ``in line'' with analysts' forecasts of 345 million pounds ($647 million) before one-time costs and goodwill amortization, Finance Director Kevin O'Byrne said today on a conference call. Dixons made 331.6 million pounds a year earlier. First-half profit advanced 29 percent.

Dixons, based in Hemel Hempstead, England, is opening stores overseas and cutting prices to keep up with competitors such as GUS Plc's Argos as U.K. consumer spending slows. Sales growth slackened over the Christmas holiday as five interest-rate rises in the last year crimped demand, the retailer said today.

``Even with this pricing pressure, they're coming in with figures that are better than analyst expectations,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $40 billion. ``They do have a good network.''

Shares of Dixons rose as much as 6 pence, or 3.8 percent, to 162.5 pence in London and were 160.5 pence as of 8:25 a.m. local time. The stock has gained 10 percent in a year.

`Challenging Period'

Sales at U.K. stores open at least a year advanced 2 percent in the eight weeks ended Jan. 8, slowing from a 6 percent gain in the fiscal first half, O'Byrne said on the call.

``It was a challenging period,'' he said. ``We remain cautious about the outlook for consumer spending, particularly in the U.K. and Italy. It remains a competitive environment.''

The U.K. retail industry had its worst December in more than a decade as rising interest rates and the end of a housing boom crimped spending, the British Retail Consortium said yesterday. Electronics products had a ``very tough'' December, the BRC said.

Dixons, whose U.K. businesses include Currys, PC World and The Link, said its gross margin, a measure of profitability, fell at the same pace as in the first half during the holiday. The company is cutting prices to keep up with competitors such as Argos, Wal-Mart Stores Inc.'s Asda and Tesco Plc.

``People like Tesco are stealing market share from general retailers by offering different products in their stores, and that just continues to heap competitive pressure on these companies,'' Tim Bray, who helps oversee the equivalent of $314 million at New Star Asset Management in London, said last week.

New Outlets

Same-store sales at the Currys and Dixons chains in the U.K. rose 6 percent and 9 percent respectively over the eight-week holiday period, Dixons said. In contrast, revenue at PC World computer stores fell 7 percent on that basis. The Link, a chain of stores selling mobile phones, was unchanged.

Total sales at Dixons rose 9 percent in the eight weeks as the company added outlets in countries such as Spain and Italy and shoppers bought new products such as LCD televisions and MP3 music players, Clare said. Same-store sales increased 1 percent.

Sales at the retailer's international operations, including PC City stores in France and Spain, Elkjop in Scandinavia and ElectroWorld in the Czech Republic and Hungary, rose 29 percent as more outlets opened. Same-store sales fell 1 percent, led by a 9 percent drop at UniEuro in Italy, the company said.

First-half net income rose to 99.7 million pounds ($145.6 million), or 5.1 pence a share, from 77.5 million pounds, or 4 pence, a year earlier, Dixons said. Sales climbed 9.1 percent to 3.39 billion pounds, benefiting from demand for plasma and LCD televisions during the Euro 2004 soccer tournament.

The company plans to pay a first-half dividend of 1.83 pence a share, a 10 percent increase on last year's 1.66 pence.

To contact the reporter on this story: Paul Jarvis in London pjarvis@bloomberg.net.

Last Updated: January 12, 2005 03:50 EST