Overall sales declined 21 per cent year on year in the four months from October 1, but only broke even in terms of EBITDA.
The entertainment business delivered an operating profit, but this has been offset by an operating loss from the discounted household and leisure business. Sales were down 36 per cent on last year in the four months from October 1.
The company said restructuring costs are expected to reach£550,000 and forecasts an overall pre-tax loss in excess of£800,000. The group has had to increase its bank overdraft by£400,000 to support its working capital.
Dream Direct chief executive officer Robert Colquhoun said: 'Following the decline of our original home software market our 2006/2007 strategy of expanding our ranges has been only partly successful. With hindsight, our ambitions for the new household and leisure categories were overly high in a crowded market with limited scope for differentiation.
'However, expanding the entertainment categories has been successful and we now have a profitable business at the EBITDA level. We now must ensure sustainability by continually developing our offer and maintaining our differentiation.'