Shares in electricals retailer Dixons Carphone (DC.) plummeted by around a fifth on the day of yet another profit warning from the company. New chief executive Alex Baldock only joined the group a matter of weeks ago, taking over from Sebastian James after his surprise departure at the beginning of the year. But he’s the first to admit that “nobody is happy” with the recent performance. In the final quarter, a sluggish mobile phone market in the UK put further downward pressure on margins and UK electricals’ margins suffered as a result of a changing sales mix. Challenges in the latter division are expected to persist, so while group pre-tax profits should land in the region of £382m this year – down from £501m in 2017 – that will fall to £300m in 2019.
It hardly marks the best start for Mr Baldock, but there are signs that the new boss is prepared to get tough to allow Dixons to navigate a difficult retail environment. In his opinion, recent problems are “all fixable”, starting with the closure of 92 standalone Carphone Warehouse stores.This is expected to reduce costs, and to ensure that gross margins don’t deteriorate beyond expectations.
The UK mobile phone market will be tough again next year, as customers increasingly choose to hang on to older handsets to bring contract bills down. But this is hardly new information. Dixons’ profit warning last August blamed a contracting mobile phone market as customers failed to upgrade mobile devices. This was then compounded by Apple’s (US:APPL) late release of the iPhone X. As such, half-year results results last December showed a 3 per cent contraction in UK and Ireland mobile sales – a trend that appears to have remained consistent into the second half-year.
But this only accounts for part of the company’s problems. Mr Baldock said underinvestment in customer service and the product range had also harmed the business, and £30m will be given over to correcting this. The group will also make a non-cash write-off on the Honeybee sales system disposal, and admits that the 2014 merger between Dixons and Carphone Warehouse hasn’t been fully integrated yet.
