Dixons constrained by UK & Ireland Mobile closures

Dixons Carphone’s (DC.) mission to become a successful “omnichannel” retail business has gained impetus through the lockdowns, as housebound consumers increased purchases of televisions, laptops and video game consoles.

The pandemic forced Dixons to speed up investment in its online business. The result has been a 103 per cent increase in online electrical sales to £4.7bn. The group puts this strong performance down to its Shop Live function, which allows online customers to chat with staff in stores and get real time advice over video. 

Strengthening online sales helped drive a 14 per cent like-for-like increase in electrical sales for the UK and Ireland to £9.6bn. However, the permanent closure of the small standalone Carphone Warehouse UK stores resulted in a 55 per cent drop in revenue for UK & Ireland Mobile, thereby constraining overall sales. Some good news for investors is that cost savings have helped it increase free cash flow to £438m. This cash has enabled it to repay its furlough and pay its £144m VAT deferral, while also restarting its full year dividend at 3p. 

Analysts are expecting adjusted EPS of 10.95p for the year ending April 2022, up from 10.7p in FY2021, according to FactSet consensus estimates. 

The overall electricals market has grown 25 per cent in the last two years and Dixons has shown impressive digital agility, gaining 6 per cent of the UK online market through FY2021. However, the long-term prospects of the group depend on the accuracy of its claim that peoples’ attitudes towards technology (and the way it is purchased) have “fundamentally changed”, or whether events over the past year amount to a pandemic induced transitory fad. Hold.

Last IC View: Sell, 128p, 17 Dec 2020