Interactive Investor

Dixons Carphone recharged by electrical goods boom

16th December 2020 10:22

Richard Hunter from interactive investor

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Covid-19 lockdowns increased demand for Dixons products, though mobile phone sales languished.

Dixons Carphone (LSE:DC.) has again delivered a blockbusting set of numbers in its first-half results, driven by its agility in negotiating a rapidly changing trading environment.

Within the figures, the performances of ‘Dixons’ and ‘Carphone’ have been markedly different.

For the latter, a 54% decline in revenues was partly driven by the permanent closure of the Carphone Warehouse store estate, while the group is also looking to leave some historically onerous network provider contracts. 

With the EE agreement having expired, just Vodafone remains, and in the spring the group intends to launch its own mobile offer. Only at that time will the company be able to withdraw from the legacy costs and drag on revenues which have been a recent feature.

For Dixons the story is completely different, and the strength of the offering has led to a vastly improved overall result.

Electrical sales online grew by 114% in the period (for the UK and Ireland the number rose by 145%). Like-for-like electrical sales overall rose by 17%, and in the period since the half-year have continued this rate of growth.

Within the offering, the introduction of ‘ShopLive’ has proved popular, with customers able to access online face-to-face assistance meant to mirror the in-store experience. 

Sales of computing products have been extremely strong throughout, in addition to which an initial surge of fridges and TV sales during the first lockdown shifted to sales of fitness trackers and food processors as the amount of time spent at home increased.

The success of Dixon Carphone’s agility of switching between online and in-store sales depending on the different stages of the pandemic swept the group to a pre-tax profit of £45 million for the period. This compares to a loss of £86 million the year before. 

There was also a promising swing given the additional revenues, with the company now having net cash of £269 million, as compared to the previous year’s net debt figure of £208 million.

Of course, challenges remain. The various impacts of the pandemic, the ongoing costs of the group’s transformation and the potential drag of a UK economy looking to find its feet after the Brexit negotiations outcome are all likely to weigh heavily. 

International restrictions will also weigh down the lucrative Dixons Travel business, while the overall costs of the enforced store closures are estimated to have cost the company £155 million in pre-tax profit and £320 million in sales.

Even so, the boost to electrical sales - and online in particular - has given the group a firm springboard to future growth. 

The shares have inevitably suffered, having dropped by 25% over the last year prior to today’s spike, as compared to a decline of 9% for the wider FTSE 250, although a bounce of 81% since the March low implies a rather more positive recent direction of travel. 

The market consensus of the shares as a ‘buy’ is also reflective of the company’s promising prospects, as is the initial share price reaction to the numbers.

The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this data may not be suitable for all investors and, if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website.

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