Dixons Retail Plc, the U.K.’s largest consumer-electronics retailer, said it will report annual pretax profit at the “top end” of analysts’ predictions after fourth-quarter revenue beat estimates on increased sales of tablets and services such as software tutorials.
Revenue at stores open at least a year rose 11 percent in the three months through April, the retailer said in a statement today. That’s faster than the prior quarter’s 7 percent gain. U.K. and Ireland sales jumped 13 percent on the same basis, more than the 7 percent median estimate of 10 analysts compiled by Bloomberg. Revenue gained 14 percent in northern Europe, beating the 7 percent estimate.
The owner of the PC World and Currys chains is training staff to improve customer relations and is selling higher-margin services to overcome cheaper online competitors. The popularity of tablets and the decline of competitor Comet have also helped the retailer. Finance Director Humphrey Singer said Dixons may sell its unprofitable Pixmania online unit.
The retailer had a “stonking fourth quarter,” said Philip Dorgan, an analyst at Panmure Gordon with a buy recommendation on the stock. “The U.K. is clearly gaining share, has obvious margin opportunities and will continue to benefit from the demise of Comet.”
Dixons rose as much as 10 percent in London trading, the biggest gain in more than six months, and was up 6.3 percent at 38.8 pence at 9:33 a.m. That boosted the Hemel Hempstead, England-based company’s gain this year to 37 percent.
“This strong year puts Dixons in the best position it has been in for many years,” Chief Executive Officer Sebastian James said in the statement.
The company said it expects to report underlying pretax profit for the year ended April 30 at the upper end of an estimated range of 75 million pounds ($114 million) to 85 million pounds.
Sales of tablets, particularly red models, are popular, and Dixons is cutting prices to compete with online-only rivals, James said on a conference call. The lower-margin tablets and price reductions pushed the gross margin down 0.7 percentage points in the fiscal year, worse than an estimate by Citigroup analyst Assad Malic for a 0.55 percentage-point decline.
Dixons is interested in exiting Pixmania through a “sale process,” while closing the business, which operates primarily in France, would be “extremely difficult,” Singer told reporters on the call.
James said the company’s business in Turkey is very small in a market that’s “consolidating quickly,” while Italy is “too small for long-term strategic stability.” There is “nothing wrong” with Dixons’ market-leading Greek business, the CEO said. Same-store sales declined 5 percent in southern Europe in the quarter.