An impressive set of results in July left many investors wondering whether electricals retailer Dixons Carphone (DC.) could come through another consumer slowdown unscathed. But this optimism has been shot down in the wake of a recent profit warning, which sent the group’s shares down nearly 30 per cent. Chief executive Seb James blamed a sluggish UK mobile market, as more consumers chose to hang onto their old handsets rather than push ahead with upgrades when confronted with higher prices and smaller technological advances.
It means pre-tax profit for 2017-18 will fall somewhere in the range of £360m to £440m, compared with previous consensus expectations of £496m. Analysts at Liberum called the new range relatively broad, although it still falls considerably short of the broker’s previous estimate of £501m.
But there are two primary catalysts for Dixons to turn things around this year: the launch of Apple’s iPhone 8 and the all-important Christmas trading period. The latest incarnation of Apple’s prolific smartphone is rumoured to hit the stores in September, although quite what the updated model will look like and be capable of is still shrouded in mystery. Furthermore, it’s thought the phone could retail for at least $1,000 (£780) which analysts have suggested could be prohibitive for a number of customers.
Prices will be a vital variable for electrical specialists such as Dixons. Like-for-like group sales actually rose 6 per cent over the first quarter, but while market share had also risen product margins fell flat. In order to maintain their market position going forward, Dixons says it’s prepared to “invest in margin” – that means keeping prices competitive, which will inevitably take a bite out of the bottom line.
