ii view: growing optimism at Dixons Carphone

Double digit sales growth and a possible partial Nordic float see this retailer’s shares heading higher.  

Trading for 17 weeks to 29 August

• UK & Ireland electrical like-for-like sales up 12%
• International like-for-like sales up 16% - Nordics up 17%, Greece up 12%
• UK & Ireland Mobile total revenue down 56%
• Net cash position and access to debt facilities of £1.3 billion

Chief executive Alex Baldock commented:

"We've continued to trade strongly and safely, and that's thanks to my colleagues: I'm full of gratitude and admiration for their expert dedication throughout a challenging time.

"Online has continued to power ahead: in the UK & Ireland alone we grew online sales by more than £500 million in four months, growth that stayed strong even as stores reopened. We will continue to help everyone enjoy amazing technology, however they choose to shop with us, at scale and in ways that other retailers cannot match.

"We've started the year well, but nobody knows what the future holds and, like many, we remain cautious in our outlook."

ii round-up:

Electrical and mobile phone retailer Dixons Carphone (LSE:DC.) today reported double digit sales gains for both its home and overseas businesses as its stores reopened and consumers worked from home under Covid-19. 

It also flagged the possibility of a partial stock market listing next year for its Nordic business in order to shine a light on its value while retaining an interest. 

Dixons shares rose by more than 8% in early UK trading although are down by around 40% year-to-date. Shares for online only electrical retailer AO World (LSE:AO.) have almost doubled in 2020 while shares of Amazon (NASDAQ:AMZN) are up by over 70%. 

Dixons own online sales rose by just over 160% in the period and were up over 200% while its stores were closed to 27 June. Physical store sales are up by a fifth year-over-year since reopening in late June.

However, mobile phone sales across the UK & Ireland remained on the back foot, falling by 56%. Standalone Carphone Warehouse store closures have remained ongoing with consumers upgrading their phones less frequently.

Management also flagged lowered profit margins during the period given the move to online sales and the loss of higher margin travel or airport sales. 

First-half results are scheduled for 16 December.

ii view:

Having merged with Carphone Warehouse back in 2014, its mobile phone business has most recently been causing difficulties. A slowing in new mobile phone technologies and consumers increasing desire to be free of more expensive contract tariffs have been among the reasons causing challenges. 

Dixons previously announced the closure of its 500 plus standalone Carphone Warehouse stores to stem mobile losses. While management is attempting to battle the issues, falling mobile phone sales continue to contrast with growing electrical sales. Like many other retailers, it also continues to face the question of what the correct balance between store outlets and online – an issue now magnified by Covid-19. 

For investors, an uncertain outlook as highlighted by management needs to be remembered, as do challenges for its mobile phone business. The previous suspension of the dividend payment has also removed a former attraction. But solid electrical sales, a possible listing and valuation focus on its Nordic business and net cash held all offer positives. For now, while its key profit period of Christmas is still to be navigated, signs of optimism look to be growing.  

Positives

• Growing electrical sales
• Geographical diversity

Negatives

• Mobile phone business losses
• Dividend suspended

The average rating of stock market analysts:

Buy