Despite good sales across the business in Europe, the UK phone market has slowed. New PBT guidance 10-25% below analyst forecasts.
Companies: Currys PLC
Dixons Carphone (LON: DC.) has seen a quarter of its share price wiped off after the release of their trading update today.
The update includes a profit warning from the Group as they try to juggle the downfall in customers upgrading their handsets. The Group now expects to generate a Profit Before Tax of £360m-440m for 2017/18.
Looking at AlphaValue's research report this morning, this new range is between 10% and 25% lower than the £483m its analyst was forecasting, and 11-27% lower than the consensus forecast of £495m. Unsurprisingly, the market has taken the lower end of this range as its new normal this morning.
Management had this to say regarding the shift in consumer behaviour:
"Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental. As a consequence, we have seen an increased number of people hold on to their phones for longer and while it is too early to say whether important upcoming handset launches or the natural lifecycle of phones will reverse this trend, we now believe it is prudent to plan on the basis that the overall market demand will not correct itself this year."
This is expected to cause a shortfall in profits for the Group's phone business. However, they expect overall profit from their other retail operations to be in line with last year.
Here is another example of the smartphone industry vertical struggling with a slowing consumer cycle as many customers decided to skip the iPhone 7, after the runaway success of the iPhone 6.
Will this slower consumer cycle persist? Our view is that the iPhone 7 was more of an incremental improvement on the 6 and people are waiting for the iPhone 8. There are industry rumours that the 8 is not that far away and includes some bigger changes. Furthermore, the rumour mill is particularly active regarding a Samsung launch soon. These factors could well drive consumers to put their hands back in their pockets.
CEO Seb James also commented, saying:
"Additionally, we have recently decided to change the way in which we are selling our honeybee software product with a move towards software-as-a-service rather than upfront sales as we believe that this will create a business with more sustainability and higher value in the longer term. It will, however, have an impact on this year's reported profitability."
The trading statement also highlights that the Group has seen like-for-like sales up 6% across the business, bolstered by strong sales in Greece and the Nordic markets.
Since the merger of Dixons and Carphone warehouse in 2014, revenue and profit margins have grown steadily, and DPS growth hovering around 17% in the same period.
Despite this Dixon's share price has suffered in 2016 and 2017, after its peak in December 2015, with the Group currently trading at a PE ratio of 7x, half the industry median of 13x.
