Shares in electricals retailer Dixons Carphone (DC.) sparked up 7% to 141.15p on Thursday as investors looked beyond a 60% slump in first half profits amid a challenging market for mobile phones.
Reassuringly, the Currys PC World-to-Carphone Warehouse brands owner maintained full year guidance and said this will be the trough year for losses in the mobile business, which should ‘at least break-even’ by the 2022 financial year.
Also powering the share price rally was news of electricals share gains ‘across all our markets’.
REAFFIRMING GUIDANCE
Results for the half ended 26 October revealed an adjusted pre-tax profit slump from £60m to £24m. However, the retailer assured it still expects to generate full year 2020 pre-tax profit of ‘around £210m’, implying a 30% year-on-year profits decline.
Current year capital expenditure guidance was also massaged down from £275m to £200m due to the rephasing of spend on larger IT projects.
MOBILE MALAISE
Dixons Carphone has been hit by the evolution of the mobile phone market, which has seen customers holding onto their handsets for longer, choose cheaper SIM-only deals and shift towards more flexible credit-based offers. The retailer’s half-year UK & Ireland mobile revenue plunged 18%.
‘Mobile is challenging as expected,’ explained chief executive officer Alex Baldock. ‘As promised, this will be the trough year for mobile losses, and it will be break-even by 2022.’
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Baldock has set out a costly turnaround plan which involves investing in physical stores to make them more engaging for shoppers, using them as showcases for products and to give specialist tech advice, while improving Dixons Carphone’s online offering.
In a tough UK electricals market, Baldock insisted ‘we’ve gained significant share, and strengthened our market leadership’. Furthermore Dixons Carphone’s international business, which spans the Nordics and Greece, registered market share gains in every territory with margins improving.
THE EXPERT’S VIEW
Commenting on today’s results, AJ Bell investment director Russ Mould said Dixons Carphone’s store remodelling ‘will require investment which is a brave move in a retail world where physical shops are increasingly being phased out. In comes a greater number of large screen TVs and out will go slow moving products, condemned to online sales only.
‘That makes sense - the challenge will now be in the execution and getting people to visit stores in the first place. Competition from the likes of Amazon remains intense and same-day delivery from Argos is also making life tougher for Dixons.
‘While it could be the last man standing in the world of selling electrical goods in physical stores on a large scale, that doesn’t mean Dixons is going to be rolling in wads of cash. It is still going to be a hard slog to prosper.’
