Carphone Warehouse owner blames 22% profit fall on consumers delaying phone upgrades

(qlmbusinessnews.com via theguardian.com – – Thur, 20th June 2019) London, Uk – –

Owner of Currys, PC World and Carphone Warehouse blames 22% profit fall on consumers delaying phone upgrades

Shares in Dixons Carphone, Britain’s biggest electrical and mobile phone retailer, slumped almost 20% as it reported a big fall in profits and warned of “significant” losses in its mobile phone business.

The group, which owns Currys, PC World and Carphone Warehouse, said it had been hit by a growing trend among consumers to delay upgrading their mobile phones.

Profits for the year to 27 April fell by 22%, to £298m, down from £382m the previous year. New chief executive, Alex Baldock, who launched a turnaround strategy in December, warned profits would fall further this year, to about £210m. Analysts had been expecting a figure of about £296m.

This is the second profits warning from the group since Baldock joined in April last year. Dixons slashed its full-year dividend to 6.75p from 11.25p. Its shares tumbled almost 30% in early trading, to 91p, and later traded down 18% at 102p.

Baldock said the UK mobile market was changing rapidly and the group had to move faster to respond, but that would mean “taking more pain in the coming year, when mobile will make a significant loss”.Advertisement

He said: “Customers are hanging on to their handsets for longer, in some cases three to four years. Some say this is going to change with 5G but we are not going to be dependent on it.”

More customers are buying their handsets and sim cards separately, resulting in lower profits for Dixons, and when they do buy bundles they want more flexibility, Baldock said. In response, the company is preparing to launch its own 36-month credit-based bundle by next April.

He said Dixons had renegotiated all its network contracts, resulting in a £60m benefit to profits, and was offering customers a better choice, including packages with Virgin Media.

The group made a statutory loss before tax of £259m, compared with a profit of £289m the year before, reflecting charges of £557m, including a £383m writedown of its UK mobile business, Carphone Warehouse.

Carphone Warehouse, which now has 560 shops compared with 662 a year earlier, made a loss of £438. The company does not expect it to return to profit until 2022. Baldock did not rule out further store closures, although there are no current plans to do so.

As part of its turnaround plan, the company is merging its mobile and electrical divisions. It has introduced 18 “gaming battlegrounds” in its stores, where customers can play video games, and is aiming for more than 80 by the end of its financial year. The group also plans to give more space to large-screen TVs and smart home technology.

Baldock said: “Stores need to be exciting places where customers go to experience technology. They should be palaces of discovery.”

Richard Hunter, head of markets at investment platform interactive investor, said: “In all, the ambitious five-year transformation plan carries many promises and targets, but it is simply too early to gauge whether these are achievable.

“Of late, there has been an element of investors running out of patience with Dixons. Even before today’s mauling, the shares had given up 37% over the last year, as compared to a decline of 8% for the wider FTSE250 index.”

By Julia Kollewe