- Full year pre-tax profit guidance upgraded
- UK and Irish markets strong in last two months
- Balance sheet further improved
Shares in Currys (CURY) rallied 7.2% to 60p after the unloved electricals retailer upgraded profit guidance for the year ended 29 April 2023 following a better-than-feared performance in the UK and Ireland in the final two months of the year.
The technology products and services purveyor also delivered two further positive surprises for investors.
Year-end net debt excluding leases is expected to be roughly £100 million, below the retailer’s earlier £100 million to £150 million estimate, thanks to a strong finish to the year with Currys’ closing stock position reduced by 10% year-on-year.
In addition, the washing machines-to-TVs seller said it had renegotiated the fixed charge cover (FCC) covenant threshold on its £500 million revolving credit facility (RCF), reducing balance sheet risk and providing the retailer with ‘increased financial resilience’.
10% EARNINGS UPGRADE
Currys now sees adjusted pre-tax profit for the year just ended in the £110 million to £120 million range, a 10% upgrade on previous guidance of around £104 million although still down from the £126 million generated the previous year due to the ongoing cost-of-living crisis.
The earnings upgrade follows better-than-expected UK and Irish trading, especially in March and April, which meant Currys’ annual like-for-like sales decline of 7% came in ahead of the 8.5% drop called for by consensus.
Moreover, profits for the UK and Irish operations are expected to be up over 40% year-on-year thanks to a recent improvement in demand as well as cost savings and ‘continued gross margin improvements’.
TROUBLE IN THE NORDICS
This more than offset challenges in the FTSE 250 retailer’s international business, where full year earnings are expected to be ‘materially lower’ than last year amid a 10% drop in like-for-like sales in the Nordics, where Currys has been hurt by aggressive competitor discounting and where trading remains ‘challenging’.
Encouragingly on the overseas front, Currys’ Nordics business has made progress on margins and costs under a new chief executive, there are signs that the competitive environment has eased somewhat, and the business in Greece delivered another year of ‘robust performance’.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, said the profit upgrade raises the question of ‘just how well Currys might be doing if it wasn’t for the previously reliable Nordic business hitting the skids.
‘Like an athlete who has found a new level of performance only to find a stone in their shoe, the electronics retailer continues to churn out an impressive performance in the UK and Ireland, belying a difficult backdrop, while continuing to struggle in Scandinavia.
‘For a long time, the Nordics arm just quietly did the business for Currys, serving an affluent customer base, but what initially seemed to be a short-term problem of competitors selling off excess stock at a discount has become a lingering issue and prompted the company to change its regional boss.’
Mould continued: ‘Another problem is the benefit from people buying new laptops and other electronic goods during the pandemic has inevitably waned amid pressures on consumer spending.
‘This makes the robust trading in the British Isles all the more impressive, albeit sales are still lower than a year ago, and suggests the company may be making some market share gains.
‘The debt position is also getting healthier, and if Currys can get its Scandi operations back up to scratch it could win over investors who have turned away from the company in recent weeks.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (In Conway) own shares in AJ Bell.
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