Retailer Dixons Carphone has warned for a sharp fall in profit in the year to April 2019, hurt by a weak UK market and a number of one-time items. Headline pretax profit is expected to drop to around GBP 300 million from GBP 382 million in the past year, the company said, prompting an over 20 percent fall in its share price. The recently appointed CEO Alex Baldock said after eight weeks in the job “though there’s plenty to fix, it’s all fixable”.
Like-for-like sales growth in the UK and Ireland slowed to 1 percent in the fiscal fourth quarter, from 4 percent at the start of the year. This was offset by an improvement to 8 percent growth in the Nordic markets and 10 percent growth in Greece, for 3 percent growth across the entire group. Over the full year to April, reported revenue was down 1 percent in the UK and Ireland, while growing 3 percent for the entire group.
Profit for the past year was in line with the company’s outlook and down from GBP 501 million in the previous year. It included an increase in bad debt provisions in the mobile division by around GBP 20 million as well as a writedown after the sale of Honeybee.
Baldock said in a statement that the international business was “in good shape”, so he’s focusing his early action on the UK. In electricals, the company’s margin was hurt in the second half of last year by the category and channel mix, as the soft PC market gave greater weight to consumer electronics and appliances, which often have higher costs due to installation and service. The focus going forward will be on restoring the gross margin in electricals, with some cost increases offset by margin initiatives.
In mobile, the company’s gross margin was “challenged” by postpay market conditions and Carphone’s contractual commitments with network operators. Baldock said the company is working on improving its proposition and network agreements, and “making progress” in talks with operators, as well as reducing costs. “We won’t tolerate our current performance in mobile, or as a Group. We know we can do a lot better,” the CEO said.
In the new year, the contracting UK postpaid market and contractual pressures should be partially offset by cost improvements, but expected lower levels of inflation in mobile customer bills will mean around GBP 15 million less in network commissions linked to line rental, the company said. The drop in profit in the new year is also due in part to a one-time positive effect of GBP 25 million in the past year from acceleration of trade balances reconciliation ahead of a new financial system launch. In addition, the adoption of IFRS 15 will lead to a non-cash accounting charge of GBP 8 million.
Furthermore, the company sees a need for “early, necessary action to correct recent underinvestment in our colleagues and customer proposition”, leading to around GBP 30 million in spending in the UK and Ireland activities. The plans also include closing 92 Carphone Warehouse stores this year.
The international business is expected to remain healthy in the new year, and Carphone said it expects a similar rate of cash conversion. The company maintained its dividend for the past year at 11.25 pence per share, but did not comment on the expected pay-out for the new year. It will provide another update in June when it relaases detailed full-year results. – Telecompaper