Fixing UK's Dixons Carphone to take years, new boss warns

[June 21, 2018]   By James Davey

LONDON (Reuters) - Turning around the fortunes of Dixons Carphone <DC.L>, the British electricals and mobile phone retailer, will take years, its new boss said on Thursday, with annual profit set to tumble again in 2018-19.

The group, which trades as Currys PC World and Carphone Warehouse in Britain and Ireland, reported a 24 percent slump in 2017-18 profit and forecast it would crash a further 21 percent in the current year.

Dixons Carphone has suffered this year from a deteriorating electricals market at home and tougher conditions in the mobile market as customers keep their handsets longer.

The figures were in line with a profit warning last month. Adding to its problems Dixons Carphone revealed last week it had become the victim of a major cyber attack for the second time in three years.

"We’re certainly talking about a multi-year journey here," Chief Executive Alex Baldock, who joined the company only in April, told Reuters.

"At the end of that what we can point toward with some confidence is sustainable value significantly in excess of what we’re seeing at the moment," added Baldock, previously the boss of online retailer Shop Direct.

Dixons Carphone made an underlying pretax profit of 382 million pounds ($502 million) for the year to April 28 -- in line with guidance given in last month's warning but down from 500 million pounds in 2016-17. The company forecast 300 million pounds for 2018-19.

The group also operates stores under the brands Elkjøp, Elgiganten and Gigantti in the Nordic countries and Kotsovolos in Greece.

Revenue rose 3 percent to 10.5 billion pounds, with 63 percent made in the UK & Ireland, 33 percent in the Nordics and 4 percent in Greece.

It is not alone in finding the going tough in Britain at a time of rising costs, weaker consumer spending and intense online competition.

Already this year Toys R Us UK, Maplin, Conviviality and Poundworld have collapsed, while Marks & Spencer, New Look, Carpetright, Mothercare and House of Fraser are closing stores.

A sign displays the logo of Dixons Carphone at the company headquarters in London, Britain August 1, 2017. REUTERS/Neil Hall/File Photo

WORK TO DO

Shares in the group, which prior to Thursday's update had fallen 37 percent over the last year, were up 2.6 percent at 195.75 pence as of 1000 GMT, as investors welcomed no further deterioration in the outlook and maintenance of the 11.25 pence full year dividend.

"We’ve got plenty of work to do on the infrastructure of this business, improving and better joining up everything from people, process, data and technology, both to improve the customer experience and to give our colleagues the tools to do the job," said Baldock, who has been critical of the group's previous management.

Baldock is focusing initially on recovering gross margins in UK electricals and on stabilising the performance in mobile phones through improvements to ranges and customer service and seeking more favorable agreements with the network operators, such as EE <BT.L>, O2 <TEF.MC> and Vodafone <VOD.L>.

The group is budgeting for a further contraction in the UK electricals market in 2018-19 and a further decline in the postpay mobile phone market. It plans to close 92 Carphone Warehouse standalone stores this year.

Baldock will update on his medium term plans in December.

"While new management is taking sensible action, uncertainty remains on earnings visibility and the future shape of the Carphone Warehouse business, in particular," said analysts at Liberum, who have a "hold" stance on the stock.

(Editing by Keith Weir)

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