Dixons, Europe's second largest electrical retailer, posted a drop in first-quarter underlying sales and profit margins as shoppers reined in spending on discretionary items amid rising prices and austerity measures.

The group, home to the Currys and PC World chains in Ireland and Britain, said sales at stores open at least a year fell 7 per cent in the 12 weeks to July 23rd, including a 10 per cent decline in the UK.

The falls were broadly in line with expectations and exaggerated by a strong performance the same time last year, when sales of televisions surged ahead of the soccer World Cup and Apple's popular iPad was launched.

Gross profit margins dropped a larger-than-expected 1 per cent due to steps to gain market share abroad, Dixons said.

The group said it had identified an extra £10 million of cost savings and would limit capital spending, adding it was thus on track to meet full-year expectations for the business.

"This performance was in line with our expectations when compared with particularly strong trading last year as a result of the World Cup and launch of the iPad. While underlying market conditions have remained challenging this year we have continued to trade ahead of our markets as customers respond to our improving customer offer," said chief executive John Browett.