ii view: Worst over for Dixons Carphone?

Dixons Carphone is pursuing a recovery plan and mobile phone losses are expected to trough this year.

Half-year results to 26 October 2019

• Revenue down 4% to £4.71 billion
• Statutory loss of £86 million (H1 last year: loss of £440 million)
• Adjusted pre-tax profit down 60% to £24 million
• Adjusted net debt up 6% to £290 million
• Interim dividend payment down 36% to 2.25p per share

Guidance:

• Expects full-year adjusted pre-tax profit of £210 million, down 30% from last year 
• All medium-term guidance unchanged

Chief executive Alex Baldock commented:

“In a tough UK electricals market, we've gained significant share, and strengthened our market leadership. Our planned investments in the colleague and customer experience have played a big part in this resilient performance, demonstrated by sharply increased customer satisfaction scores. Our big International business also registered market share gains in every territory, with solid sales and margin improvements. And we've taken important strides in our transformation (programme). 

“Mobile is challenging as expected. As promised, this will be the trough year for Mobile losses, and it will be break-even by 2022.

“Good progress, yes, but all of us at Dixons Carphone are shareholders, and conscious that our business is still nowhere near its full potential. We're determined to realise that potential, and confident we're on the right path to do so."

ii round-up:

Dixons Carphone (LSE:DC.), whose brands include both Currys and PC World, reported a smaller-than-expected fall in adjusted profits. 

Losing less money than forecast at its UK mobile phone business accounted for the beat in profit performance, with management’s reiteration of its full-year profit estimate also reassuring investors. 

The share price rose by more than 4% in early UK market trading. 

UK and Irish mobile phone same-store sales fell by 10% as customers upgraded their phones less frequently and legacy network provider contracts continued to impact profitability.

Dixons, which generates most of its profits in the Christmas-focused second half, outlined market share gains both in-store and online against an overall fall for the broader market. 

Overseas sales on a same store basis rose by 3%, while management’s long-term transformation programme begun to gain momentum. 

ii view:

Selling goods across 1,500 stores and 16 websites in eight countries, Dixons falls into the UK subsector of speciality retailers, along with rival AO World (LSE:AO.) and others such as WH Smith (LSE:SMWH) and Pets at Home (LSE:PETS). 

Battling the rise of online retailers such as Amazon.com (NASDAQ:AMZN), Dixons merged with Carphone Warehouse back in 2014 with cost savings via store closures a key driver. Today, and under a new five-year transformation programme, the group’s plight to adapt and prosper continues. It is targeting £200 million in cost savings by 2022, with an increased focus on services and customers buying using credit. 

For investors, the potential benefits from its multi-year transformation plan are as yet difficult to see. However, challenges for the mobile phone business are soon expected to peak, while a prospective dividend yield (not guaranteed) of around 5% and covered twice by earnings – despite the current rebasing - potentially compensates patient but arguably higher risk investors.

Positives

• Geographically diverse – around 40% of sales & profits generated outside of the UK & Ireland
• five-year transformation programme previously launched
• An investment to incentivise staff underway. Giving staff at least £1,000 of shares

Negatives

Network provider legacy contracts are expected to generate a loss this year for its mobile business

Online market share is below that of its store share - rivals such as Amazon have muscled in

Dividend being rebased - payment cut by 40%

The average rating of stock market analysts:

Buy