Data hacking scandal and tough mobile market hit struggling retailer.
Shares in Dixons Carphone rise despite news of a 24% fall in profits
- Troubled retailer’s full year results acknowledged hit from challenging UK mobile market and data hacking scandal
- Rise in share price likely due to lack of fresh bad news and positive positioning from management
- The Share Centre remains wary of retail environment with very few retailers currently on recommend shares to ‘buy’ list
Troubled electrical retailer Dixons Carphone revealed full year results today which did not provide anything new in term of surprises. This may not be a bad thing given the disastrous few years in the retail sector and the recent news surrounding the data hacking they suffered. Investors should appreciate that full year revenues did increase by 3% to £10.5bn, driven by the strong recoveries in the Nordic region and Greece. However, its core UK & Ireland operations reported a 1% fall, partly as a result of the weakness on the UK high street and store closures that have been implemented. Nevertheless, on a like for like basis, the region saw a 2% increase in sales.
As expected, group pre-tax profits fell by 24% and this was down to a number of factors including a challenging UK mobile market, where fewer customers are upgrading their phone and tariff together and instead opting to separate the two, leaving the group with less commission to earn. There was also an £87m charge from revaluations on receivables, changes to customer support agreement costs and insurance contracts.
Given the lack of new bad news in the release, the shares rose by roughly 2% at the open this morning. The new Chief Executive, Alex Baldock has put a positive spin on the group’s current position, including highlighting the fact that it remains number one in many of its markets and is still growing market share. He has set an enthusiastic tone, suggesting that with a new management team in place, there’s nothing that can’t be done and expects results at the top and bottom line.
While we appreciate the new management’s stance, the group’s fate, to a certain extent, is out of its control. The main issue is the state of the UK high street and consumer confidence levels in the face of only modest real wages increases and macro-economic uncertainties.
Management have said that they are budgeting for a contraction in the UK electricals markets during 2018-19 while expecting labour and electricals costs to be higher. There will be further store closures during the year as fewer shoppers look to the high street, it is therefore paramount that the group’s online offering must be up with the competition and ensure that security breaches aren’t repeated.
At The Share Centre, we remain wary of the retail environment and have very few retailers left on our buy list and this is unlikely to change in the near term. We no longer have a formal recommendation on Dixons Carphone, but anyone investing in the company will be taking a high risk contrarian approach and must feel that the group can stand up to the giants of online retailing.
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