- Shares fall on lowered full year profit guidance
- Heavy discounting in overseas markets hits margins
- UK and Ireland remain resilient for now
Electronics retailer Currys (CURY) was the worst performer in the FTSE 250 as the shares sank 6% to 61.3p after the firm lowered full-year profit guidance by around 17% to £100 million to £125 million.
In the first half to 29 October international markets were disrupted by competitors selling heavily-discounted excess stock as consumer spending was hit by the cost-of-living crisis.
Currys responded by matching prices which reduced its gross margin by 2% while the market fell by around 3%, resulting in international earnings before interest sliding to £4 million from £68 million the previous year.
Chief executive Alex Baldock insisted the disruption would be short-lived: ‘We expect these pressures, intense though they are, to be temporary - demand will normalise, excess stock will wash through, and competitors will find unprofitable aggression hard to sustain. We've also stepped up our self-help actions on margins and cost.’
The UK and Irish business was resilient generating a 25% increase in adjusted operating profit to £25 million despite sales shrinking 10% to £2.29 billion.
Group adjusted operating profit fell by 67% to £29 million on sales which were 7% lower at £4.47 billion. The company reported a loss of £498 million after recording a £511 million non-cash impairment charge.
FORECASTS WERE ALREADY FALLING
Consensus profit expectations were already at the lower end of prior guidance (£125 million to £145 million) which may limit the extent of analysts’ downgrades.
Earnings revisions have fallen by around 43% over the last few months according to Refinitiv data.
Liberum ‘prudently’ lowered its earnings estimates to the bottom end of the new range but stayed positive on the longer-term prognosis:
‘While we acknowledge the shares may see some short-term pressure, we continue to believe that the market is overlooking Currys’ qualities that will make it the long-term winner in its vertical, especially as smaller players continue to struggle.’
OTHER EXPERT VIEWS
AJ Bell investment director Russ Mould took a less sanguine view: ‘For now, Currys is guiding that this is a short-term issue as rivals sell off heavily-discounted excess stock, however the market may remain sceptical of a recovery in this part of the business until it sees evidence of improvement.
‘Currys benefited from people buying laptops and other electronic goods during the pandemic but recent pressures on consumer spending and the fact that much of this earlier spend is unlikely to be repeated in the near term have clouded the outlook for the company.’
Investment research company Edison Group said: ‘Currys’ share price is down 44% year-to-date, and these mixed results and adjusted profit guidance will do little to boost investor confidence.
‘It remains to be seen to what extent the important Nordics market can recover in the New Year, given management’s new guidance anticipates a significant improvement in profit in the second half of its year.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (Ian Conway) own shares in AJ Bell.
