Yahoo Finance Dixons Carphone warns on profits as customers keep phones for longer
Dixons Carphone has warned of a steep fall in profits this year, as customers hold on to their phones for longer after the weak pound pushed up the price of new handsets by up to a fifth.
The shares plunged more than 30% to 161p, which means their value has more than halved this year.
In an unscheduled trading statement, the company, which trades as Currys, PC World and Carphone Warehouse, said it now expects profits in the range of £360 to £440m this year, down from £501m last year. Analysts had been forecasting annual profits of £495m. The downgrade comes despite 6% growth in like-for-like sales in the first quarter ending in July.
Dixons said the UK mobile phone market had become tougher in the last few months. Due to the sharp fall in the pound since last year’s Brexit vote, handsets have gone up in price by 16% to 20%, it said, and there have been no phones coming onto the market with groundbreaking new features.
The chief executive, Seb James, said people were holding on to their phones four to five months longer than previously, replacing them after 29 months on average rather than 24, and this trend was unlikely to change for the rest of this year. But he stressed there had been no change to how people use phones and that shorter battery life would force them to upgrade eventually.
The scrapping of EU roaming charges in mid-June will result in a hit of £10m to £40m this year, Dixons said. It takes a slice of the lifetime value of mobile contracts.
The profit warning raised fresh concerns over the health of Britain’s high street retailers. The UK’s two biggest home improvement chains, Kingfisher and Homebase, last week reported falling sales, partly due to wet weather. A survey from the CBI out at 11am BST should shed more light on the state of the retail sector. Sir Martin Sorrell, chief executive of WPP, the world’s largest advertising group, this week warned of a global economic slowdown.
Dixons – the biggest seller of mobile phones and contracts in the UK – hopes that the launch of Apple’s iPhone 8, expected about 12 September, will bring customers back into its shops.
James said: “One of the catalysts that will bring people into the market is a piece of technology they want to own. Everything we know about the iPhone 8 suggests it will be a popular product, but we are not betting the farm on it.”
He expects it to be better than the iPhone 7 and in line with the iPhone 6S, but not as good as the iPhone 6. Another new phone coming on to the market is Samsung’s Galaxy Note 8, which launched in New York on Wednesday.
Analysts at Liberum noted that the new profit forecast range was “relatively broad”. They added: “Key unknowns within this also include how successful the iPhone 8 will be and Dixons’ trading performance over the key Christmas peak period to come.”
Hargreaves Lansdown analyst Laith Khalaf was sceptical: “The forthcoming generation of Samsung Galaxy and iPhone handsets claim to make big steps forward, but recent history hasn’t delivered much that’s revolutionary. Seb James will be hoping Tim Cook has something big up his sleeve.”
Broker Exane BNP Paribas had already downgraded Dixons to “underperform” earlier this month, pointing to changes in the mobile phone market and new competitors such as BT and Sky.
