Currys warns on Christmas trading

Investment in its online offering has benefited Currys (CUR) during Covid-19, which in the comparable period last year helped to outshine pre-pandemic figures. However, revenue was flat this time around as the retailer formerly known as Dixons Carphone, which sells home electronics and appliances, warned of a tough trading period ahead. Investors responded by marking the shares down by 10 per cent.

Admittedly, the outlook looks troubling in the short term. Management said that “market demand has softened in the run-up to Christmas”, an obviously crucial trading period. The Omicron coronavirus variant is causing more uncertainty for the retail sector, which could hit footfall and demand further. Despite this, management is still confident of reaching adjusted profit before tax of £160m for the full year.  

Revenue generation is split between the group’s UK & Ireland and international markets. Sales in the former fell by 4 per cent, driven by a mobile sales decline after the closure of all Carphone Warehouse stores in Ireland in April. This came after the UK stores were shut in 2020, which helped reduce lease liabilities by £171m year on year. Greece was the standout international performer, with sales up 15 per cent to £280m on the back of new store openings and strong air conditioning sales.

Currys’ ‘omnichannel’ strategy approach seeks to transform the business into a slicker operator in how it serves online and in-store customers. The move to a single brand – Currys – in the group’s UK & Ireland market is part of this and online sales growth of 54 per cent over two years is a positive sign. Management said that capital expenditure “will normalise to around 1.5 per cent of sales” after peaking this year.

The group’s free cash flow of £185m was a steep fall against last year's £499m, but this was due to notably high working capital inflows at the time, and cash generation and the balance sheet position was strong enough for the group to reinstate the half-year dividend.

Consensus estimates give adjusted earnings per share of 12p and 17p for the 2022 and 2023 – a price to earnings ratio of nine times and seven times is the result, which looks undemanding. Broker Numis said that “mid-term ambitions look challenging”, with cost pressures and a difficult trading period ahead, and we agree. But there is enough in Currys' offering for us to remain steady for now. Hold.

Last IC View: Hold, 121p, 30 Jun 2021