DSG rebranded its Dixons stores in the High Street as Currys.digital

Sales at Currys were up 1% over the eight weeks to 6 January. The rise was lower than expected, despite a late Christmas rush for laptops and TVs.

DSG added that poor sales in French and Italian stores had offset a stronger performance elsewhere in Europe.

Profit margins across the group were down 0.7% on last year, DSG said.

"Whilst sales of flat screen TVs have been strong, prices have inevitably been falling as they become more prominent in UK households. This has put considerable strain on margins," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

Italy and PC City France remained disappointing DSG See DSG's share price

In lunchtime trade, DSG shares were down 20 pence, or 10.3%, at 174.25p.

Trouble abroad

In addition to issuing a trading update on the Christmas period, DSG also unveiled pre-tax profits of �78.9m ($155m) for the six months to 11 November, down from �105.2m in 2005.

The company had already warned that half-year profits would be hit by a poor performance at its Italian UniEuro chain.

Over the Christmas period, UniEuro saw like-for-like sales - which strip out the impact of new stores - fall 7%.

"Italy and PC City France remained disappointing," DSG said.

"The overall performance across the period in both countries means that we are now unlikely to deliver our expectations in those markets in this financial year."

Brighter Vista?

Across the group as a whole, DSG reported a 3% rise in like-for-like sales over the key Christmas trading period.

Its online operations continued to grow, accounting for 10% of Christmas sales against 3% last year.

DSG ditched its Dixons brand on its High Street stores last year, replacing it with Currys.digital, but kept the Dixons name on its Dixons.co.uk website.

Chief executive John Clare said that profit margins were set for boost this year with the launch of Microsoft's new operating system Vista, as this would need higher-specification computers to run it.