Dream Direct warns on profits

Pesky postmen to blame...

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Mail-order software firm Dream Direct Group saw its shares fall 18 per cent this morning on news that it will miss profit targets.

The company said losses were likely to be £750,000 rather than £450,000 previously predicted. It says it has extended its overdraft until January 2005. Dream Direct sells a wide-range of shrink-wrapped software and accessories from games and education to small office products. The company floated on AIM in May 2002.

Pat Huggins, finance director at Dreams Direct, told The Register: "This is the tail-end of an aggressive growth in revenue and customer numbers. We have half a million customers on our database now and we've invested a fair amount in people and systems, and launched a new catalogue, to help that happen. Marketing costs will become more efficent and our response rates are already improving."

At the end of last year the company began analysing its customer database and segmenting customers into behavioural and product categories. This has helped improve mailshots and improve churn rates.

However, Huggins said the company had suffered because of last November's postal strike. He said it had pre-booked adverts and inserts into newspapers ahead of Christmas, traditionally its busiest time. But the strike led to people delaying or cancelling mail-order purchases because of worries over delivery. Dreams Direct saw response rates fall by as much as 40 per cent during the dispute.

Robert Colquhon, chairman of Dream Direct, said he was disappointed to be issuing a profit warning but: "with a database of over half a million customers now achieved, the successful and profitable launch of our second catalogue brand and with a third launch scheduled for the autumn, the business is robust and on a firm footing.

“The costs involved to date have been necessary to deliver a critical mass of customers and importantly the Company has now reached a stage where it can fully focus on leveraging its customer database, generating cash and delivering profits, which I am confident will be achieved in the current financial year.”

The full Regulatory News Service announcement is here. Dream Direct will issue another trading update in the next few weeks. ®

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