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Dixons Carphone to report profits slump as mobile market falters

PUBLISHED: 06:00 11 December 2017 | UPDATED: 08:42 11 December 2017

Dixons Carphone is expected to announce a slump in profits

Dixons Carphone is expected to announce a slump in profits

Archant

Dixons Carphone is expected to report a slump in half-year profits next week as the retailer counts the cost of falling consumer confidence and a weaker mobile phone market.

People are holding onto older models of mobile phones for longerPeople are holding onto older models of mobile phones for longer

A consensus of City analysts expect the firm to report a colossal 56% fall in underlying pre-tax profits to £63 million on Wednesday.

Like-for-like sales are predicted to have risen by just 1% in the UK in the second quarter, compared with 4% in the first three months of the year, a significant slowdown.

The results will come after Dixons Carphone warned in August over a Brexit profit hit as the soaring cost of new mobile phones means people are holding on to older models for longer.

The electricals giant said the pound’s collapse following the country’s decision to quit the European Union has meant an increase in shop prices for mobile devices and bemoaned “challenging conditions”.

As a result, Dixons Carphone expects headline pre-tax profit for the full year to be in the range of £360 million to £440 million.

Dixons Carphone also said it would take a £10 million to £40 million hit from changes to EU roaming legislation.

Andrew Porteous, analyst at HSBC, said the firm is in need of a “strategic reset after a tumultuous year”.

He added: “Dixons Carphone undoubtedly faces challenges from an uncertain UK consumer outlook and major changes in the mobile market.

“In addition, its core UK electricals market is inarguably cyclical, which is a concern as the UK consumer outlook undoubtedly faces challenges in the near term.”

Mr Porteous also believes that chief executive Seb James must focus on the mobile phone segment of the group and posited three potential strategies.

They include either renegotiating contracts with suppliers on better terms, reconfiguring the operating model or, most drastically, shutting it down altogether.

Investors will also be keen to assess the success or otherwise of Black Friday, which will give them a clue as to how the critical Christmas trading period could play out.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Investors will be hoping to see strong results from its big Black Friday sales push.

“Following recent weakness, and high-profile launches from Apple and Samsung either side of this release, mobile sales will likely take centre stage.”

The high street has been hit particularly hard by the post-Brexit annihilation of the pound.

Sterling lost more than 20% of its value against the dollar and more than 15% versus the euro in the aftermath of the referendum.

The net result has been an increase in import costs for retailers, who have then passed this on to already hard-pressed consumers.

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