DSG Int'l
59.5p -5.5p
DSG International is showing an electric turn of pace at present, but unfortunately its trajectory is downwards. With apologies to the possible copyright of rock star Prince, the electrical-retailer-formerly-known-as-Dixons
has put out its second profit warning in less than four months.
Back in January DSG's shares were badly hit when it signalled annual profits would come in below City expectations.
At that stage the group forecast an annual profit of £250 million following a poor Christmas when the flat-screen TVs and computers were not flying off the shelves at the Currys and PC World-owner.
Things have got worse, however, and a further 8.5 per cent was wiped off the stock yesterday as DSG said it now only expected profits to come in at between £200m and £210m.
DSG's problem is that it deals in largely big-ticket items. These are the purchases that many consumers have put on hold since the credit crunch set the nervousness ball of wool unravelling last summer.
The company's shares have now underperformed the UK general electrical retailers index by nearly 40 per cent over the past year.
With yesterday's fresh shock, the City has marked DSG as odds-on to be the next retailer to cut its dividend significantly following on from the likes of Woolworths and Kingfisher, owner of B&Q. Panmure Gordon, for example, believes the company will more than halve its full-year payout to 4p from 8.87p last time.
DSG says customers are increasingly shopping around for price-cutting bargains as far as the purchase of electrical goods is concerned. This is squeezing group profit margins.
As pessimism stalks the land, interest rate cuts or no interest rate cuts, this phenomenon of consumers "wanting a deal" on purchases is unlikely to go away in short order.
DSG's problem is exacerbated by the fact that it has sizeable businesses in Italy and Spain, both of whose economies are also moving into choppy waters at present.
From a City perspective, the spotlight will now swing even more on the presentation by group chief executive John Browett on 15 May of the business review he has conducted since joining the company last September.
Some analysts hope he will say the company is looking to withdraw from some troublesome overseas operations – such as Italy – to focus more resources on the UK.
But, given the difficult retailing backdrop, any strategic change in the short-term is likely to be a hostage to fortune.
TOO little, too late ... or a measured response which was the best that could be expected as inflation rears its head again.
That broadly summed up the City's dual reactions to the Bank of England's 0.25 percentage point cut in interest rates yesterday.
Personally, I think the move was about right.
Governor Mervyn King and his colleagues want to show they are responding to exceptional circumstances.
The basic lack of trust between financial institutions is shown by the very high rates they are charging to lend to each other: the so-called Libor rate.
The debilitating effect of the distrust is now not looking containable within the financial sector, however, but is rippling out to British suburbia, the high street and the factory gate.
Yesterday's rate cut shows the BoE is cognisant of this.
But a half-point cut, à la Federal Reserve last January, would have smacked of panic and possibly been self-defeating as a result in restoring consumer confidence.
The central bank is walking a tightrope. It wants to apply short-term amelioration to the patient while striving not to store up mid-term inflationary problems.
It is right to have a short-term weapon in its armoury. As a famous economist once said, in the long term we are all dead.
But the Bank is right not to disregard all negative factors that suggest cutting rates in this climate is fraught with danger.
In this situation, it is possible desperate times do not call for desperate measures. Rather, a nerveless hand on a juddering tiller.
The Bank knows it has no magic formula to soothe the nerves of homeowners, consumers and businesses.
Quarter-point cuts may only be a damp compress to the fever. But it might be all that can safely be done at present.
The full article contains 728 words and appears in The Scotsman newspaper.
