Earnings down at Dixons Carphone as mobiles stay static

Half-time profits at Dixons Carphone have lost their spark, triggering a warning from the electronics giant about potential store closures.

Dixons Carphone profits have lost their spark.
Dixons Carphone profits have lost their spark.

Headline pre-tax profit slumped 60 per cent to £61 million in the 26 weeks to 28 October, down from £154m in the same period last year, while total sales edged up 3 per cent to £4.87 billion.

Dixons Carphone – owner of Currys and PC World – was dragged down by a 3 per cent slide in like-for-like sales at its struggling mobile phone division, including the impact of a delayed iPhone X launch into the second half of the financial year.

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The group, which is heavily dependent on Christmas sales of latest technology, pledged to reposition the division as a “simpler, less capital-intensive business”.

Group chief executive Seb James said: “We have a high cost base and we need to address that, and we always look at our store estate.”

Neil Wilson, senior market analyst at ETX Capital, said: “For simpler and less capital intensive, read store closures.

“With over 700 Carphone stores in a total estate in excess of 1,000 across the group, there is ample opportunity to rationalise the Carphone estate and improve profitability in mobile while still retaining a dominant market position.”

UK profit fell from £130m to £34m in the period and the earnings setback came after the group gave warning in August that the escalating cost of new mobile phones means people are holding on to older models for longer.

The retailer has also said the substantial post-Brexit vote fall in the value of sterling has meant an increase in shop prices for mobile devices, exacerbating “challenging conditions”.

James added: “As we said in August, the UK post-pay mobile phone market is tougher, with a combination of higher handset costs and relatively incremental technology growth continuing to cause customers to hold on to their handsets for longer and some to choose a sim-only contract in the meantime. In addition, the later launch of the iPhone X pushed some sales into the second half of our financial year.

“Throughout the period, we made a very conscious decision to fight hard to drive sales in our product offering, and this has impacted mobile profitability.”

Profits were also hit by a £58m charge from a change in receivables revaluations and insurance contract terms.

More positively, Dixons Carphone said that it has had a good start to pre-Christmas trading after a record Black Friday in the UK and overseas.

The group was helped by the performance of electricals, where like-for-like sales rose 6 per cent in the UK.

Separately, James said the company is looking at taking Bitcoin payments for its products, but that it is premature to do so now. The firm expects full-year profit to come in at between £360m and £400m.

“We think its business is likely to prove more resilient than the market expects given share gains in electricals and its Nordic exposure,” said RBC Europe analyst Richard Chamberlain.

The board has declared an interim dividend of 3.5p, in line with a year earlier, while it intends to maintain total full-year dividend at 11.25p.