Dixons Carphone warns on profits as mobile challenges worsen
Oliver Haill Sharecast | twenty four Aug, two thousand seventeen 07:36 – Updated: 16:43 | | |
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Dixons Carphone warned that its annual profits will be well brief of expectations due to the fresh business model of its sales software division, while also cautioning that the UK mobile phone market was proving “more challenging”.
Profits at the FTSE two hundred fifty retailer are taking a one-off hit as its Connected World Services arm moves towards selling Honeybee sales software product on a software-as-a-service basis, which will see no repeat of the sorts of large up-front contracts in previous years, however the troubles of the mobile phone business are not expected to dent overall profits in the core retail operations due to good progress in UK & Ireland, Nordic and Greek electrical businesses.
Headline profit before tax for the year to the end of next April will be in the range of £360-440m, chief executive Seb James said, versus a consensus forecast of close to £497m.
UK and Irish like-for-like electrical retail sales were up 4% in the thirteen weeks ended twenty nine July, Nordics 8% and Greece 6%, leading to LFL sales up 6% across the group, which was against a period boosted by the Euros football championship last year, as well as strong sales from our Nordic and Greek businesses.
Reported revenue was up 1% in the UK, 17% and 16% in the Nordics and Greece thanks mostly to currency switches, but down 24% in CWS.
“In all of these markets we have seen growth in revenues, market share and profitability with overall product margins remaining vapid in electricals,” James said.
The UK postpay mobile phone market, however, has been more challenging in the last few months, he admitted.
“Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental. As a consequence, we have seen an enlargened number of people hold on to their phones for longer and while it is too early to say whether significant upcoming handset launches or the natural lifecycle of phones will switch sides this trend, we now believe it is prudent to plan on the basis that the overall market request will not correct itself this year.”
James is certain that over the longer term the postpay market will “largely comeback to normal” but in the meantime he said “we have taken a conscious decision to invest in our margin and proposition to maintain market share and scale so we remain in a strong position as the market leader when this happens”.
There are also likely to be a £10-40m of one-off negative adjustments this year due to switches in EU wandering legislation, versus a net positive and largely positive non-cash effect of £71m last year.
DC shares tanked 25% in early trading on Thursday to 171.1p, albeit 7.75p or around three percentage points of that is due to the stock going ex-dividend on the day as well.
The first-quarter update has “stoked fresh fears about the health of the UK retail sector”, said analyst Neil Wilson at ETX Capital, noting that of the £400m midpoint of the fresh PBT guidance, only a very petite portion of the 20% drop in profits from last year’s £501m looks down to the disposition of the Spanish business, with the thickest hit seeming to be caused by EU wandering legislation.
Looking at the UK mobile phone retail market he observed: “Consumers are holding onto phones for longer. Brexit matters here – the powerless pound exchange rate has made devices more expensive and consumers are less willing to substitute old handsets so quickly. The lack of a significant upgrade cycle from Apple has played a part and we might expect an improvement when the iPhone eight is released, which might be towards the end of the year.”
On CWS, Wilson said this may be an “area of growth potential that investors might be overlooking”, with the Honeybee tablet sale software being spinned across the Sprint store network in the US, plus agreements with outsourcers in France and the UK that may supply further customers.
“But it’s going to take time and today’s update makes that very clear. The big Sprint deal last year won’t be repeated and profits this year are expected to be limited. A budge to the software-as-a-service model, away from upfront sales, is likely to result in a higher value, more sustainable business, but this cannot be achieved quickly.”
Analysts at RBC Capital Markets trimmed its earnings per share forecasts to 25.39p from 33.58p for the current year as it eliminated £70m of PBT due to higher investment in the UK mobile proposition to maintain market share, £25m from a likely net negative relating to the EU wandering switches, and £20m from a reduction in expected CWS profits from the budge to SAAS.
RBC, which for two thousand nineteen forecasts EPS of 27.43p down from 35.58p, kept DC as a “top pick” as it slashed its price target to 225p from 325p as it said the Q1 was “disappointing as an indication of how much UK mobile has deteriorated recently”.
While visibility is low pre-Xmas trading and the fresh iPhone launch in October, analysts think investors should recall that DC’s market share in electricals is growing; that mobile headwinds are not affecting its Nordic business and that the shares “should have yield support of >6%”.
Dixons Carphone warns on profits as mobile challenges worsen
Dixons Carphone warns on profits as mobile challenges worsen
Oliver Haill Sharecast | twenty four Aug, two thousand seventeen 07:36 – Updated: 16:43 | | |
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Dixons Carphone warned that its annual profits will be well brief of expectations due to the fresh business model of its sales software division, while also cautioning that the UK mobile phone market was proving “more challenging”.
Profits at the FTSE two hundred fifty retailer are taking a one-off hit as its Connected World Services arm moves towards selling Honeybee sales software product on a software-as-a-service basis, which will see no repeat of the sorts of large up-front contracts in previous years, however the troubles of the mobile phone business are not expected to dent overall profits in the core retail operations due to good progress in UK & Ireland, Nordic and Greek electrical businesses.
Headline profit before tax for the year to the end of next April will be in the range of £360-440m, chief executive Seb James said, versus a consensus forecast of close to £497m.
UK and Irish like-for-like electrical retail sales were up 4% in the thirteen weeks ended twenty nine July, Nordics 8% and Greece 6%, leading to LFL sales up 6% across the group, which was against a period boosted by the Euros football championship last year, as well as strong sales from our Nordic and Greek businesses.
Reported revenue was up 1% in the UK, 17% and 16% in the Nordics and Greece thanks mostly to currency switches, but down 24% in CWS.
“In all of these markets we have seen growth in revenues, market share and profitability with overall product margins remaining vapid in electricals,” James said.
The UK postpay mobile phone market, however, has been more challenging in the last few months, he admitted.
“Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental. As a consequence, we have seen an enlargened number of people hold on to their phones for longer and while it is too early to say whether significant upcoming handset launches or the natural lifecycle of phones will switch sides this trend, we now believe it is prudent to plan on the basis that the overall market request will not correct itself this year.”
James is certain that over the longer term the postpay market will “largely come back to normal” but in the meantime he said “we have taken a conscious decision to invest in our margin and proposition to maintain market share and scale so we remain in a strong position as the market leader when this happens”.
There are also likely to be a £10-40m of one-off negative adjustments this year due to switches in EU wandering legislation, versus a net positive and largely positive non-cash effect of £71m last year.
DC shares tanked 25% in early trading on Thursday to 171.1p, albeit 7.75p or around three percentage points of that is due to the stock going ex-dividend on the day as well.
The first-quarter update has “stoked fresh fears about the health of the UK retail sector”, said analyst Neil Wilson at ETX Capital, noting that of the £400m midpoint of the fresh PBT guidance, only a very puny portion of the 20% drop in profits from last year’s £501m looks down to the disposition of the Spanish business, with the thickest hit seeming to be caused by EU wandering legislation.
Looking at the UK mobile phone retail market he observed: “Consumers are holding onto phones for longer. Brexit matters here – the powerless pound exchange rate has made devices more expensive and consumers are less willing to substitute old handsets so quickly. The lack of a significant upgrade cycle from Apple has played a part and we might expect an improvement when the iPhone eight is released, which might be towards the end of the year.”
On CWS, Wilson said this may be an “area of growth potential that investors might be overlooking”, with the Honeybee tablet sale software being flipped across the Sprint store network in the US, plus agreements with outsourcers in France and the UK that may produce further customers.
“But it’s going to take time and today’s update makes that very clear. The big Sprint deal last year won’t be repeated and profits this year are expected to be limited. A stir to the software-as-a-service model, away from upfront sales, is likely to result in a higher value, more sustainable business, but this cannot be achieved quickly.”
Analysts at RBC Capital Markets trimmed its earnings per share forecasts to 25.39p from 33.58p for the current year as it liquidated £70m of PBT due to higher investment in the UK mobile proposition to maintain market share, £25m from a likely net negative relating to the EU wandering switches, and £20m from a reduction in expected CWS profits from the budge to SAAS.
RBC, which for two thousand nineteen forecasts EPS of 27.43p down from 35.58p, kept DC as a “top pick” as it slashed its price target to 225p from 325p as it said the Q1 was “disappointing as an indication of how much UK mobile has deteriorated recently”.
While visibility is low pre-Xmas trading and the fresh iPhone launch in October, analysts think investors should recall that DC’s market share in electricals is growing; that mobile headwinds are not affecting its Nordic business and that the shares “should have yield support of >6%”.