Mobile phones set to drag on Dixons Carphone trading
Retailers have been battling a number of headwinds.
Dixons Carphone is expected to book another sales slump at its troubled mobile phone division when it reports on its third-quarter performance next week.
City analysts forecast the retailer’s Carphone Warehouse outlets will post a 5% decline in like-for-like sales in the period, which includes Christmas.
The Currys PC World owner’s shares were stung in December when it detailed mammoth write-downs on the value of Carphone, alongside a £200 million cost-cutting exercise.
It also posted losses of £440 million for the half-year to October 27 against profits of £54 million a year earlier.
The Carphone business is under more pressure but is valued at zero by the market and offers upside if trading can be turned around Dan Homan, Citi
Nevertheless, analysts at Citi believe that should the mobile division be turned around, it could offer upside to investors.
Dan Homan, analyst at the investment bank, said: “Dixons Carphone controls over one third of the UK electricals market and despite the incessant rise of Amazon and Apple, it has gained share over the last decade as weaker incumbents have failed. We do not see a structural risk to this market share.
“The Carphone business is under more pressure but is valued at zero by the market and offers upside if trading can be turned around.”
Chief executive Alex Baldock outlined his strategy overhaul to turn around the fortunes of loss-making Carphone last month.
He said job losses are not expected as a result of the efforts, with the savings set to come from moves to merge IT systems and reduce supplier costs.
Mr Baldock added that Dixons Carphone remains committed to having stores and has no current plans to shut more than the 102 shops already announced this financial year.
Ahead of Tuesday’s trading update, which covers the 10 weeks to January 5, the City expects comparable sales of electrical products at Dixons Carphone to have risen by just 1% in the UK amid a challenging retail environment.
We like the new strategy which has clearly been thoroughly thought through. But we cannot think of a successful retail turnaround in the past five years and this may temper initial enthusiasm Andrew Porteous, HSBC
Total group comparable sales are set to come in flat.
Retailers have been battling a number of headwinds this year and last, including low consumer confidence, high costs and rapidly changing shopping habits.
Firms such as Toys R Us, Maplin and HMV entered into administration, while others have sought rescue deals and shut stores.
Brexit is also looming and HSBC’s Andrew Porteous said: “The failure of others may weigh initially. A paucity of successful retail turnarounds and Brexit-related uncertainty may limit the market’s enthusiasm.
“We like the new strategy which has clearly been thoroughly thought through.
“But we cannot think of a successful retail turnaround in the past five years and this may temper initial enthusiasm.”