Dixons Profitability Gains in Home Market, Boosting Shares

Dixons Retail Plc (DXNS), the largest U.K. consumer-electronics retailer, said profitability improved at home after it sold more products at full price over the holiday, boosting the shares the most since November.

Gross margins, or profit as a percentage of sales, widened by 0.4 percentage points in the U.K., and were unchanged for the entire business, the Hemel Hempstead, England-based retailer said today. Dixons also said sales declined at a more moderate pace over Christmas and rose in the last two weeks.

“This was a solid performance from Dixons in what remains a testing market environment,” David Jeary, an analyst at Investec Securities in London, said in a note. The unchanged gross margin was “a very good performance in our view.” Jeary has a “hold” recommendation on the shares.

The stock rose 11 percent to 10.94 pence, the steepest gain since May. Sales were boosted by products such as Amazon.com Inc.’s (AMZN) Kindle e-reader, with one being sold every three seconds over the holiday, Dixons said. Profitability was also helped by increased demand for so-called KnowHow services such as computer-software installation.

Sales at U.K. and Irish stores open at least a year fell 7 percent in the 12 weeks ended Jan. 7, the company said, an improvement on the 8 percent decline reported for the first half of the financial year ended Oct. 15.

‘Solid Performance’

Domestic same-store revenue rose 23 percent from Jan. 4 to Jan. 14, compared with a period of last year when sales were hurt by an increase in the value-added tax rate.

“This is a solid performance against a challenging backdrop,” Chief Executive Officer John Browett said in the statement. “Consumer confidence in many of our markets remains fragile and we will maintain a cautious approach to the outlook for the year ahead.”

The British Retail Consortium has forecast an “equally challenging year” for U.K. retailers in 2012 after promotions drove a 2.2 percent gain in December sales. Best Buy Inc. (BBY) said in November that it plans to exit the U.K., while the competing Comet chain has been sold to private-equity firm OpCapita LLP.

“It is obviously helpful that we’ve had some competitors withdraw from the U.K. or are in serious trouble,” Browett said on a call with journalists. Internet competitors have a very small share of the market, according to Dixons, which generated about 19 percent of sales online in the holiday quarter.

Online Sales

“Our pricing is very competitive, customers really want to buy from a store where they can get help and advice and also someone to look after them when something goes wrong, so we’re through our worst fears on that,” Browett said of online competition from companies such as Amazon. “We think this Christmas has proven that we can actually trade well.”

Online sales at Dixons rose 43 percent in the last four weeks, the executive said.

Sales of Apple Inc. (AAPL) iPads rose 200 percent over the holiday, while headphone sales doubled, Dixons said.

The retailer did “much better” than competitors on televisions, Browett said, particularly three-dimensional versions that need to be explained to shoppers.

Consumers “really want the new technology,” he said. “Where people are being more cautious are things which they can defer or where technology has run its course,” such as satellite navigation systems and some gaming products.

Group same-store sales fell 5 percent in the 12-week holiday period. Declines in Italy, Greece and the U.K. outweighed growth in Nordic markets, the company said.

The London Olympics and European soccer finals are among events taking place this year that mean the retailer can be “a little bit more optimistic,” the CEO said.

Dixons has the cash and bank facilities to repay a bond due this year, Browett said. The retailer has a bond of 160 million pounds that matures Nov. 15, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net

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