Bumper Xmas for Dixons as interim profits race ahead

There was fresh evidence of the upturn in consumer spending yesterday when Dixons, Britain's leading electrical retailer, announced a sharp increase in half-year profits together with strong Christmas trading figures.

However, Dixons shares fell sharply due to City concerns over the potential impact of the planned increase in insurance premium tax on the warranties sold on goods. Analysts said the increase in the tax, from 2.5 per cent to 17.5 per cent, could knock pounds 15m off Dixons' profits next year.

Dixons' chief executive, John Clare, said that Christmas trading was boosted by strong sales of personal computers as well as computer games such as the Sony Playstation and the Sega Saturn. Computer software also performed strongly with games such as Red Alert and Tomb Raider among the biggest sellers.

Announcing a 53 per cent increase in half-year pre-tax profits to pounds 57.5m, Mr Clare painted a bullish picture of high street prospects, saying that only the forthcoming election might inject an element of uncertainty.

"In our markets we saw a pick-up that started in March or April of last year. You could almost pin-point it to the week. At that time the Tessa money was starting to come out and the benefits of the income tax changes from the previous Budget were starting to come into effect. It continued through the summer and is still there now. There is a bit of a feel-good factor out there and the improvements in the housing market will also help."

However, he did sound a note of caution. "What there isn't is a boom. Consumers are more cautious than they were at the end of the Eighties and not all retailers are benefiting. There are winners and losers out there."

Mr Clare confirmed suspicions that though Christmas had been good for many retailers, Dixons fell short of the hoped-for bonanza. Sales at Dixons were strong in the first week of December but then stalled for two weeks. There was a strong run in the final days. It is a pattern other retailers are expected to confirm as they release their Christmas trading statements over the next few weeks.

At Dixons, the strongest performing format was PC World, where like-for- like sales increased by 21 per cent over the same six-month period last year. The group plans to open 10 more stores a year, taking the total number in the PC World portfolio to at least 60. However, Mr Clare said the PC market had become more competitive, with more retailers selling the popular multimedia computers.

Dixons shares fell 27p to 511p due to fears over the impact of the increase in insurance premium tax announced by the Chancellor in the Budget. Warranties and other insurance premiums account for 8.5 per cent of Dixons' group sales and a higher proportion of profits. Dixons said it could not quantify the precise impact but said it hoped to claw some of the lost margin back through higher prices. "It's too early to say what might happen," said finance director Robert Shrager.