Results upgrade sparks Currys rally

Currys remains in full delivery mode following a glowing performance over its peak trading period which led to a profit guidance upgrade.

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The group has now gone one step further, expecting adjusted pre-tax profit for the year to be around £191 million, higher than the previously guided range of £180 million to £190 million, which would be 18% higher than the corresponding period.

In addition net cash, which had been expected to hit a level of £100 million, is now estimated to be in excess of £170 million. This in turn suggests that further shareholder returns are in sight, where a previous £50 million share buyback programme accompanied a return to the payment of a dividend, even though the 1.8% yield is pedestrian for the time being.

A highlight within this update was the contribution from the Nordics business, previously a material thorn in the side for the group, given that it accounts for 40% of overall revenues. Since the peak period, like-for-like sales have grown by 4% and by 8% over the second half, leading to growth of 6% for the full year. The omnichannel offering is beginning to hit the spot, while market share gains, strong demand for kitchens and new categories and a broadly stable gross margin are all helping the healing process.

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The rest of the group’s business is in the UK & Ireland, which saw post-peak like-for-like sales growth of 4% and for the second half 3%, leading to 3% for the year as a whole. Growth in market share, B2B, Services and New Categories was enough to offset cost headwinds, and while Sainsbury's-owned Argos may have struggled over the festive period, Currys has a significantly different offering and delivered a rather different outcome.

Meanwhile, mobile subscribers soared by a further 18% to stand at 2.6 million, ahead of the group’s aim, as the pricing point offered clearly resonated with the more cost-conscious consumer.

Indeed, the strategy to target higher margin revenue streams provides a strong backdrop and also brings recurring income, such as its mobile plans, Care and Repair, credit provision and protection plans. The group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling.

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Some of the group’s more recent headroom was enabled by the sale of its Greece business for net proceeds of £156 million which, coupled with temporarily reduced capital expenditure, lifted net cash and free cash flow. Indeed, the group has now far exceeded plans to maintain at least £100 million of net cash to manage the working capital cycle, while at the same time having reduced the pension deficit to just £16 million from a previous £403 million.

Of course, Currys cannot guarantee an unfettered run in growing its business. Quite apart from the ongoing repair work being undertaken in the Nordics, the outlook for the economy is currently unstable, which could crimp consumers’ propensity to spend, especially on discretionary items such as computing.

The announcement in March that the CEO would be stepping down was met with much disappointment and resulted in a share price decline of 10% on the day, despite the group maintaining its guidance for the year. The news followed previous comments from the company that it was concerned about the potential impact of chip shortages linked to the AI boom which could result in price inflation given it could reduce the amount and variety of goods that Currys currently sells.

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Indeed, a fall of 19% for the shares over the last three months, driven by the imminent departure of the CEO, some negative updates from elsewhere and lower consumer confidence, has reduced the price performance to a positive 2.5% over the last year, as compared to a gain of 8% for the wider FTSE250.

Nonetheless, the shares are still ahead by 78% over the last two years and the strong opening price reaction is further vindication of the group’s strategy. With no impact thus far from the Middle East conflict and hedged energy costs, appetite for the stock remains undiminished, with the market consensus of the shares as a strong buy holding firm.