Shares in electrical goods-to-mobile phones seller Dixons Carphone (DC.) crashed 20.5% lower to a bombed-out 99p as the hard-pressed retailer lurched into the red and warned it will take ‘more pain in the coming year’ within its troubled mobile business.
Yet again analysts are having to downgrade estimates for the high street retailer, the product of 2014’s Dixons Retail-Carphone Warehouse mega-merger that appears increasingly ill-advised and poorly timed.
FAILING TO CONNECT
For the year to 27 April 2019, headline pre-tax profits plunged 22% to £298m and the retailer also swung from a £289m profit to a statutory loss before tax of £259m, struck after non-cash impairments relating to the changing UK mobile market.
Growth investors won’t be wowed by a 1% decline in annual group revenue to £10.4bn, while income seekers won’t like the cut in the final dividend to 4.5p.
That slashes the full year payout to 6.75p per share with all likelihood something similar this year. The company paid 11.25p to investors for 2017/18.
In its 2020 financial guidance, Dixons Carphone predicts the UK mobile business will be ‘significantly loss making’, before (hopefully) ‘improving materially’ in the following two years as chief executive officer Alex Baldock’s turnaround efforts feed through.
However, Dixons Carphone’s headline pre-tax profit guidance for the current year is downgraded to ‘around £210m’, significantly below the £300m the market was looking for.
READ MORE ABOUT DIXONS CARPHONE HERE
The Currys PC World and Carphone Warehouse brand owner has been hit by tougher conditions in the mobile phone market, with total handset volumes down as customers hold onto handsets for longer and increasingly move away from 24 month postpay towards SIMO and more flexible credit-based contracts.
BALDOCK’S BIT OF SPARK
Former Shop Direct boss Baldock, who set out his turnaround strategy in December, does expect growing sales and headline profits ‘this year and beyond’ in Dixons Carphone’s UK & Ireland electricals business.
His optimistic take is that ‘the past year has seen us keep our promises to investors, delivering around £300m of headline profit, resilient free cash flow, and continued growth in sales and market share in UK & Ireland electricals and International. And we’ve taken the first big strides in our transformation.’
THE EXPERT’S TAKE
Yet AJ Bell investment director Russ Mould comments: ‘Mobile phone habits are changing fast, leaving retailers like Dixons Carphone in a pickle.
‘It feels like the trend for switching phones to the latest model every year is truly a thing of the past. The latest phones are perfectly adequate to keep for a much longer time and consumers are finding better value by going for SIM-only deals rather than locking into a long-term contracts with a specific network.
‘The soaring popularity of WhatsApp has shifted consumer habits away from standard text messaging, thereby removing a key sales point for mobile phone networks trying to lure customers with unlimited texts. Most phones have decent cameras, touch screens and can play music to a reasonable quality, so what’s left for phone sellers to offer in order to make people want to constantly upgrade?
‘Dixons Carphone is a real loser from this shifting landscape, as reflected by the warning that its UK mobile business will make a significant loss this year.
‘It would suggest the merger with Carphone Warehouse in 2014 was a bad move. That was just at the point when Dixons was getting back on its feet and solving previous problems with inferior customer service. The enhanced mobile offering has now knocked Dixons back down to the ground.’
