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DSG, Home Retail Slump as Weaker Outlook Trumps Sales

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Jan. 14 (Bloomberg) -- DSG International Plc and Home Retail Group Plc slid in London trading after the U.K. retailers tempered stronger holiday sales with forecasts of a tough 2010.

DSG, the U.K.’s largest consumer-electronics retailer, and Home Retail, owner of Argos catalog stores, both declined 6.2 percent. HMV Group Plc, the U.K.’s largest CD retailer, and Halfords Group Plc, Britain’s biggest retailer of car parts and bicycles, also dropped in London after reporting holiday sales.

Home Retail Chief Executive Officer Terry Duddy said revenue growth will be “hard to come by” for the industry this year on diminishing benefits from lower interest rates and the demise of competition such Woolworths Group Plc. DSG chief John Browett also warned of “flat” industry growth this year, adding he is relying on store refurbishments to drive sales.

Potential public spending cuts, tax increases and rising unemployment will weigh on shopper spending next year, analysts say. U.K. consumer confidence fell in December by the most in more than a year as expectations for the economy deteriorated.

“The now almost compulsory cautious management outlook for the remainder of the year was also in evidence,” in Home Retail’s statement, Richard Hunter, head of U.K. equities at Hargreaves Lansdown, said in an e-mail.

Hemel-Hempstead, England-based DSG, the owner of the PC World and Curry’s chains, said sales at stores open at least a year climbed 8 percent in the 12 weeks ended Jan. 9, helped by a program of store refits and a record Christmas for televisions, computers and washing machines.

‘Economic Uncertainties’

The retailer said analysts’ estimates of full-year pretax profit will probably rise to the “top end” of a range between 60 million pounds ($97.7 million) and 90 million pounds. Credit Suisse analyst Assad Malic said he expects a “lower increase” for 2010 estimates “given broader economic uncertainties.” Holiday sales beat estimates “materially,” Malic said.

Milton Keynes-based Home Retail said same-store revenue rose 4 percent at the Homebase home-improvement chain, compared with the 2 percent consensus estimate of 14 analysts compiled by the company. Same-store sales at the Argos chain rose 0.1 percent in the 18 weeks ended Jan. 2, below the 1.5 percent consensus estimate, as video game and jewelry sales fell.

Home Retail’s Duddy said customers bought less expensive products over the last 18 months, adding “the mass market needs to be very savvy so I would expect trading down to continue.”

Home Retail raised its annual pretax profit forecast by 20 million pounds from 265 million pounds because of reduced costs.

Shares Drop

“We expect promotional activity to remain high this year and therefore pressure Argos gross margin further,” John Guy, an analyst at MF Global in London, said in a report.

Home Retail shares fell 17.7 pence to 265.8 pence. DSG declined 2.34 pence to 35.19 pence.

The FTSE 350 General Retailers Index fell 2.9 percent, led by an 8 percent drop in HMV, which announced it is replacing the managing director of its Waterstone’s book chain and posted a 1.2 percent drop in same-stores sales during the festive period. “Unsatisfactory” sales at Waterstone’s pulled down the performance, the retailer said. Dominic Myers will take over from Gerry Johnson as the chain’s head with immediate effect.

Halfords said today that same-store sales rose 0.2 percent in the 13 weeks ended Jan. 1, slowing from 1.7 percent growth in the previous 26 weeks. The shares slid 3.9 percent. Pretax profit for the year will be toward the “upper end” of analyst estimates between 105 million pounds and 112 million pounds on higher margins and cost cutting, Halfords 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.