Wednesday, 14 December 2016

Carphone Warehouse Is Facing Tough Times Ahead

Carphone Warehouse

Dixons Carphone, Britain's largest electricals and mobile phone retailer, is planning for tougher times after the group beat forecasts with a 19 percent rise in first-half profit.

The company has had a strong run of earnings so far in 2016, but its shares have fallen 30 percent, reflecting its exposure to high-cost, big ticket goods and perceived vulnerability to any drop in consumer spending.

Its shares had risen ahead of the results and were up initially on Wednesday before dropping sharply. They were nearly 7 percent down by 1200 GMT, making them the biggest fallers in the FTSE 100 index.

Analysts said Dixons Carphone's performance was not strong enough to justify a boost to earnings forecasts.

"The shares have had a good run (this week) and a lack of upgrades today has led to profit-taking," independent retail analyst Nick Bubb said.

Analysts also fear many retailers may have to raise prices next year as a slide in sterling after the Brexit vote has increased import costs, potentially squeezing consumer demand.

Dixons Carphone, which trades as Currys, PC World and Carphone Warehouse in Britain and Ireland, said it had still not seen any effect on trade in its home market as a consequence of Britain's vote in June to leave the European Union.

It said it remained optimistic about its ability to continue to gain market share in all its key markets, while its investment plans had not changed because of Brexit. It also operates the Elkjop and Elgiganten brands in Nordic countries and Kotsovolos in Greece.

But Chief Executive Seb James said the company was planning for the possibility of more uncertain times.

"In particular, we have been focusing on reducing our fixed cost base, identifying areas of potential market share growth if the world becomes a tougher place for our competitors, and generally preparing for all eventualities - just in case," he said.

"We are also planning our offer so that potential currency impacts are minimised for the customer."

Dixons Carphone's finance director Humphrey Singer said that 90 percent of its purchases are in sterling, meaning there is not a direct pressure from exchange rate movements.

He said its suppliers, who manufacture globally, will, however, feel currency pressure once their hedging arrangements begin to unwind.

But he said countering that was the fact that the company has a wide product range that tends to change a lot over time.

"So actually I'm not sure it will be very noticeable to consumers what the price changes (will be)," he said.

Singer also pointed out that many of Dixon Carphone's products are naturally deflationary - computer products deflate at about 10 percent a month, while TVs deflate at about 10 percent a quarter.

Dixons Carphone made an underlying pretax profit of 144 million pounds ($182.3 million) in the 26 weeks to Oct. 29 - ahead of analysts' average forecast of 141 million pounds.

Group revenue was 4.87 billion pounds, up 11 percent. Sales at stores open over a year rose 4 percent, driven by a 5 percent rise in the UK & Ireland.

Before Wednesday's update analysts were on average forecasting an underlying pretax profit of 487 million pounds for 2016-17, up from 447 million pounds in 2015-16.



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