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EXTRA: Dixons Carphone To Close Stores As CEO Says Issues Are Fixable

Tue, 29th May 2018 13:39

LONDON (Alliance News) - Dixons Carphone PLC saw around GBP490 million wiped off its total market value on Tuesday after the mobile phone and electrical goods retailer announced store closures in the wake of a profit warning.

Dixons Carphone shares were down 18% at 192.40 pence, the worst performer in the FTSE 250 on Tuesday.

The group said it expects to report pretax profit for the year that ended April 28 of approximately GBP382 million, down 24% from GBP501 million the year before.

For the year ahead, headline pretax profit is expected to decline to "around" GBP300 million. This fall includes "early, necessary action" to correct recent under investment in its customer proposition, with market and contractual pressures in UK Mobile to be partially offset by cost improvements.

In December, Dixons Carphone said it would simplify its Mobile division after poor performance in the first half of its financial year, as group profit more than halved year-on-year. The company said the mobile sector's revenue has struggled as consumers hold onto phones and the slower release of Apple Inc's iPhone X, especially in the UK.

The mobile segment is comprised of the high street cellphone retailer Carphone Warehouse business, with which electrical goods retailer Dixons Retail merged in 2014.

On Tuesday, the company said it would close 92 Carphone Warehouse standalone stores in the UK this year, as the embattled retailer seeks to cut costs.

Dixons Carphone said its UK mobile business delivered flat like-for-like sales growth across the year in a declining postpay market.

Postpay refers to a bill customers receive at the end of each month based on actual phone usage.

"As seen throughout the year, postpay market conditions and our contractual commitments with the networks have meant that gross margins continued to be challenged," the company said.

AJ Bell investment director Russ Mould said: "The mobile phone part of the business has suffered thanks to rising competition, increases in handset prices and changing customer habits with consumers holding on to their phones for longer."

Moreover, margins have been under pressure in its UK electrical division as a result of category and channel mix, Dixons Carphone said. It said expects that the electricals market will continue its contraction throughout the year. Its UK mobile division has seen margins reduced by network contracts.

However, Dixons Carphone offered a glimmer of optimism as it said annual group revenue would rise 3% in 2018, with strong growth of 9% coming from the Nordic region and 11% in Greece.

"The top-line might still be growing but the group is struggling to translate rising sales into higher profits. Offering home delivery and installations is proving a burden, with weakness in mobile phone and computing markets putting further pressure on margins," said Hargreaves Lansdown analyst George Salmon.

Only eight weeks into the job, new Chief Executive Officer Alex Baldock said "there's plenty to fix, it's all fixable".

Baldock said the company was working "at pace" to bring clear long-term direction and address under investment in important areas of the business.

In addition, Baldock said Dixons would sharpen its focus on the core business and on fewer, bigger initiatives.

"Right now, with our international business in good shape, we're focusing early action on the UK. In electricals, we're focused on gross margin recovery. In mobile, we're stabilising our performance through improvements to our proposition and network agreements. In both, we'll work hard to improve our cost efficiency. We won't tolerate our current performance in mobile, or as a group. We know we can do a lot better," Baldock said.

"There's so much more to come from Dixons Carphone, though plenty of hard work lies ahead," Baldock added.

AJ Bell's Mould said: "Investors may forgive Baldock the pain caused by this shock profit warning if he can back up his assertion that the problems the company faces are 'fixable'. However, he needs to get it right as there is unlikely to be a second opportunity to ground expectations in this way."

Dixons Carphone will report annual results on June 21.

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