A surge in half-time profits triggers earnings upgrades from analysts in multi-channel electrical specialist Dixons Retail (DXNS). The retailer is enjoying robust consumer appetite for everything from tablets to smartphones and high-tech television sets. Yet shares in the PC World-to-Currys owner are off 2.7% at 49.92p as a cautious outlook statement takes some of the shine off the interim numbers.
Half-year results to October from the £1.9 billion cap reveal underlying pre-tax profits of £30.2 million (2012/13: £14 million). Struck before pension costs but after property losses, this figure smashes consensus expectations of between £22 million and £26 million. A further highlight was robust cash generation, resulting in net cash of £55.4 million versus a £21.9 million net debt position a year ago.
The number one electricals player and grabbing market share in key geographies, Dixons Retail reports a strong performance on home turf. In the UK & Ireland, like-for-like sales skipped 9% higher and operating profits surged five-fold to £31.4 million.
Driving performance was the continued benefits of rival Comet's demise at the end of 2012, as well as a strong customer appetite for its KNOWHOW technology expertise and repairs service. Dixons Retail says it continues to mop up market share, although the electronics retailer still faces competition from web-based rivals including Amazon (AMZN:NDQ).
Unveiling its first group underlying profit in six years, Dixons Retail says the going was tougher in Northern Europe where profits eased from £48.5 million to £45.5 million amid increased price discounting. The rate of like-for-like growth was also more pedestrian at 3%.
Following a storming run for the Shares Play of the Week, the stock price is easier this morning, possibly reflecting a cautious trading statement alluding to tough comparatives ahead. CEO Sebastian James highlights 'very strong trading this time last year' and flags 'the fact that we have now annualised Comet's exit', factors which make the second half far more challenging.
Under the stewardship of James, Dixons Retail has made great strides with its restructuring, completing the disposals of flailing operations in Turkey and Italy. Significantly, the sale of loss-making France-based online retailer PIXmania is expected by the end of this month, removing a major drag on profits.
Following today's figures, Cantor Fitzgerald retail analyst Freddie George reiterates his 'buy' rating on the stock and raises his price target from 50p to 60p. His full year pre-tax profit forecast nudges up from £150 million to £155 million, taking earnings per share up from 2.75p to 2.84p.
George writes: 'Following the disposals of Pixmania and their Turkish and Italian subsidiaries, the company now has dominant market positions in the UK and Scandinavia. It will also benefit from a relatively strong product pipeline and from a reduction in interest costs (forecast at £40m in FY14) and property losses (forecast at £25m in FY14).'
