Nearly £500 million was wiped off the value of DSG International yesterday as the electricals retailer revealed disappointing trading at Currys in the UK and its Italian UniEuro chain.

Analysts downgraded profits forecasts by nearly 7 per cent to about £307 million for the year to March as the retailer admitted that gross margins for the group had slipped by 0.7 percentage points, 0.5 points worse than expected.

Currys, the group’s flagship British electricals chain, also revealed that underlying sales rose by only 1 per cent in the eight weeks to January 6, compared with expectations of at least 3 per cent.

The shares slumped 23¼p, or 12 per cent, to 171p.

John Clare, the chief executive, said that Currys had lost out to general retailers in the market for small electrical gifts such as shavers and digital cameras. Sales of portable CD and DVD players slumped as shoppers opted for iPods instead.

He said that performance at Currys high street stores, which were rebranded from Dixons last year, was particularly disappointing and that DSG was likely to move off the high street over the next five years as store leases ran out.

He added that margins had been hit because laptop computers, popular at Christmas, did not earn the best margins.

Meanwhile, all of the group’s stores experienced much stronger sales post-Christmas when they were discounting.

Analysts said that Currys underlying sales growth of 8 per cent in the three weeks after Christmas indicated dismal trading at the chain in December. Analysts are sceptical about the outlook for DSG.

Tony Shiret, an analyst at Credit Suisse, said: “Conditions have been pretty favourable this year and profits have not risen. Next year is going to be a lot tougher and they will do well to hold profits.”

Mr Clare said that he was cautiously optimistic about the outlook. He believed that sales of flat screen televisions would be boosted by shoppers upgrading to high definition and digital-ready screens.

The launch of Vista, Microsoft’s new operating system, at the end of this month was also cause for hope, he said. He expected shoppers to buy more expensive computers with capability to run the new software.

Mr Clare added that the UniEuro chain was showing signs of improvement. “We are convinced the worst of Italy is behind us and we should be looking forward to progress in the market,” he said.

• Kesa, the electricals retailer which owns Comet, reports on Christmas trading today. Shares dipped 2.8 per cent to 343p yesterday as investors feared that it would have suffered the same squeeze on margin and sales as rival DSG.

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  Christmas sales in the electronic goods market (December 2006 v 2005):

• MP3 players, up 0.8% Source: GfK

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