Interactive Investor

Dixons Carphone restarts dividend after lockdown sales boost

30th June 2021 09:06

Richard Hunter from interactive investor

An online sales boom during the pandemic has improved both sales and confidence at the electricals retailer. 

Dixons Carphone’s (LSE:DC.) agility in negotiating a rapidly changing trading environment has paid dividends, with the company well positioned for further growth.

Electrical sales online over the year to 1 May rose by 103%, with computing being the best performer, driven by both remote working and in-home entertainment resulting from the various lockdowns. Equally promising is the company’s view that the technology market has now structurally increased, with hybrid working likely to become entrenched. At the same time, the group’s leading positions in its chosen markets and its multi-channel offering both bode well for the post-pandemic environment.

Despite the various lockdowns, electrical sales rose by 14% on a like-for-like basis, with pleasing performances from both the UK and international operations. Adjusted pre-tax profit rose by 34%, and statutory profit came in at £33 million, as compared to a loss of £140 million in the previous years.

The cost of revamping the mobile business, including the closure of Carphone Warehouse stores, was a drag on revenues for the UK mobile business, which fell by 55% and also incurred inevitable costs. However, the regeneration is seen as being highly cash generative and should underpin the progress being made elsewhere.

The pressure on margins resulting from such a shift to online sales has been offset by the generally higher sales and cost reductions, resulting in improved operating margins. The tailwind of increased revenues has also resulted in a net cash position of £169 million, from the previous year’s net debt figure of £204 million.

With the company outlook also being optimistic, Dixons has reintroduced the dividend. An implied yield of around 2.5% is not especially punchy, but nonetheless both prudent and a sign of management confidence for prospects.

The popularity and availability of innovations such as ShopLive, giving customers the ability to access online face-to-face assistance in a way designed to mirror the in-store experience when stores have been allowed to open, has proved popular and is destined for further expansion. Indeed, customer contact numbers have grown from 3.5 million to 9.6 million over the period, and the final year of accelerated investment in the transformation will add firepower to a number of lines which are already seeing the benefit of the evolving environment.

To be spinning so many plates involves some execution risk, and the resilience of the UK economic recovery may test Dixons Carphone’s mettle over the coming months. This element of guardedness has slightly pruned appetite for the stock, for which the market consensus has slipped to a 'cautious buy'. Even so, the potential is present for Dixons to exploit, and an increase of 33% in the share price over the last year, as compared to a gain of 32% for the wider FTSE250, is evidence that success will continue to be rewarded.

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