Dividend is cut as revenues, sales and pre-tax profits all decline.
Dixons Carphone (DC.) results continue to show retail sector struggle
- Mobile business faces challenges, with shares dropping by 25% in early trading as market reacts.
- Group continues to grow online sales as it looks to compete with the likes of Amazon and Argos.
- Contrarian investors may consider today’s results as an opportunity, however we still see high risks in the sector and the stock not justifying a ‘buy’ recommendation.
Dixons Carphone's troubles have been well known, but this morning’s set of results is still highly reflective of the state of the retail sector in general. Revenues fell by 1% to £10.4bn with the decline in the mobile business being the largest contributor where like for like sales declined by 4%. The mobile business is facing a number of structural challenges as consumers hold onto their phones for longer. Pre-tax profits fell by 22% to £298mn, while exceptional charges relating to the restructuring led to a reported loss of £320mn. Shares reacted by dropping as much as 25% in early trading which is also a reaction to the final dividend being cut by more than expected, to 4.5p from 7.75p last year.
The outlook for the electronics division, which performed relatively well this year seems also to be good for the upcoming year where they expect sales and profitability growth in the UK & Ireland along with International sales too. In mobile though, it seems that it is likely to be another challenging year as the restructuring continues and investors have been warned of another loss making year from this division.
Dixons Carphone not justifying a buy recommendation
The restructuring within the group is much needed and it will sap capital investment for some rewards in the not too distant future. The group is transitioning to become more of an online seller, where this year online accounted for 28% of sales and increased by 9%. It will need to continue to head in this direction while remaining competitive against others such as Amazon and Argos. Yet the sentiment among investors towards the retail sector isn’t great. Contrarian investors may consider today’s plunge as an opportunity, we still view the high risks in the sector and the stock unwarranting of a buy recommendation.
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