Dixons Carphone warns on profits for coming year
Dixons Carphone said profits were down 24% in the past year and will drop more than 21% in the coming year as new chief executive Alex Baldock sees "plenty of hard work" ahead for the electricals retailer.
Currys
88.40p
17:15 18/10/24
FTSE 250
21,149.58
16:49 18/10/24
FTSE 350
4,614.58
16:49 18/10/24
FTSE All-Share
4,570.30
17:09 18/10/24
General Retailers
4,415.48
16:54 18/10/24
But Baldock, who joined eight weeks ago from pure-play online retailer Shop Direct, said his early reconnaissance from around the business had cemented his optimism, even though extra investment would be needed. "I've found exceptional strengths, and though there's plenty to fix, it's all fixable."
For the year to 28 April, group revenue was up 3% after a strongest quarter for UK sales in the year and continued strength in the overseas businesses. Headline profit before tax for 2017/18 will tumble to around £382m from last year’s £500m due to continued challenges in UK mobile and margins effected by channel mix in the second half.
The headline PBT was only within the guided £360-400m range thanks to exceptional accounting benefit, which otherwise would have left it short at £357m.
Baldock said management were "working at pace to bring clear long-term direction to the business…We will address underinvestment in important areas of the colleague and customer experience. We will sharpen our focus on the core business and on fewer, bigger initiatives. We will bring this business closer together, the better to give customers the full benefit of everything we have to offer them, and to deliver that through a truly integrated business - it is not today."
Indeed, for 2018/19 PBT is expected to slump further to £300m when the market had been forecasting around £390m. This new figures includes the impact of £30m invested into the UK & Ireland to counter the perceived underinvestment by former boss Seb James, £8m negative impact from IFRS15 implementation, £15m impact from lower inflation on mobile and around £24m due to further contraction of the UK electricals and mobile market.
As he sees the international businesses in "good shape" and expects them to reinforce their market leadership positions, early action is being focused on the UK, where contraction is expected in the UK electricals market, along with some cost increases from wages and IT depreciation that can be only partly offset.
Some progress was reported in discussions with the UK mobile networks with the aim of improving the business model, but the coming year is expected to see a further decline in the postpay market, with lower inflation leading to a near-£15m lower contribution from network commissions income. He said 92 Carphone Warehouse standalone formats will be shuttered this year in a bid to boost margins in the mobile division.
"In electricals, we're focused on gross margin recovery," he said. "In mobile, we're stabilising our performance through improvements to our proposition and network agreements. In both, we'll work hard to improve our cost efficiency. We won't tolerate our current performance in mobile, or as a group. We know we can do a lot better.
"I've been struck since my first day by the commitment and know-how of so many of my colleagues, by the breadth and depth of our multichannel capability, by the sheer energy we can release here. Equally I've been struck by the strength of our market position, of our appeal to customers. There's so much more to come from Dixons Carphone, though plenty of hard work lies ahead."
DC shares fell to a five-month low of 170p in early trade and by 0824 BST were down 19% to 189.4p.
Market analyst Neil Wilson at Markets.com said it could only be described as a "nasty little profits warning" but was confident that while Dixons "looks a bit flabby and the market is just as soft", there should be some easy wins in terms of making it leaner, especially around store closures.
As there are more than 700 Carphone standalones in a total store estate of more than 1,000, he said there was ample opportunity to rationalise the Carphone estate and improve profitability in mobile whilst still retaining a dominant market position. "The fact that Dixons would shutter a significant portion of Carephone Warehouse formats was probably the worst kept secret in retail, and there is scope for more."
Said Credit Suisse: "On one side, the statement highlights the early work done by the new CEO Alex Baldock in getting a handle on the business and making early changes, particularly in management, and also lays bare the scale of challenges in the business mainly in the UK. But the reality is that profits will be c.20-25% lower for the second year in a row and investors will have to wait until December to get a full update on strategic plans and progress."
As for Deutsche Bank, which had been forecasting £400m PBT for the coming year, said they expect the dividend yield "to be a likely reference point for valuation" and view the dividend as "secure" after cutting profit forecasts to management's new guidance. "We revert to a target price based on discounted cashflow basis, which falls to 210p though we anticipate the fall in share price today to provide upside to this target."