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PC World owner DSG International expects to report a fall in first-half profits, after disappointing sales of Microsoft's new Windows Vista software.

Europe's second-biggest consumer electronics retailer insisted that the computer equipment chain had delivered a "good" sales performance against tough comparatives for the previous year in the key back-to-school period.

DSG said a reduction in laptop stocks following lower-than-expected sales of Vista-related products and a "changing sales mix" had reduced gross margins across its computing division by around two per cent.

As such group profits are expected to be down by around £20 million over the first-half, although DSG stressed that stock levels have now returned to normal and the company expects to recover some of the lost margin during the second half.

DSG, which also owns electrical retailer Currys, said that its like-for-like sales increased by five per cent during the 24 weeks to October 13th and said that it was pleased with the performance of its UK businesses – along with its operations in the Nordics, Greece and central Europe.

In the UK and Ireland like-for-like sales grew by six per cent over the first-half, with sales across Europe continuing to be driven by flat panel and high-definition televisions, laptop computers, digital cameras and game consoles and accessories.

But DSG said that its performance in Italy remained "disappointing", against a weak consumer backdrop.

Looking ahead the group said that while debate continued about the "uncertain" outlook for some of its markets and the consumer environment in 2008, it remained confident about its prospects in the run up to Christmas.

"Whilst profits in the first half will be down year on year, the next three months include the important Christmas peak season, a period in which over half our annual profits are generated," said DSG chairman Sir John Collins.

"We are well prepared for this period and are cautiously optimistic that our product pipeline and market leading propositions will excite our customers," he added.