Dixons Carphone Cash Flow Down Not Out
City Index | Jun 20, 2019 15:11
Store closures and easing credit book key to survival
Dixons Carphone (LON:DC) is the latest barometer of Britain’s painful retail industry as it transitions to new consumer patterns and online purchases. There’s little doubt things remain ugly.
Shares in the mobile phones and electricals store plummeted as much as 28% on Thursday, their biggest one-day drop since 2017. The £1.27bn group warned of “significant” losses in the phone business. It’s an echo of issues that emerged around two years ago tied to consumers upgrading handsets less often and shifting to cheaper contracts.
This time, the impact is expected to drag annual pre-tax profits some 30% below market forecasts to about £210m. That follows Dixons’ reporting 2019/20 core earnings largely in line with sharply reduced expectations. It aims to deal with consumer market changes by renegotiating contracts with mobile operators. Dixons is also some way through a savings programme that will unify more branded stores, with 39% of standalone Dixons Carphone stores less than a mile from a branch of a 3-in-1 Megastore format.
The group sees results improving over the next two years. Quantification of the extent of continuing challenges has actually been well-received by investors. By the middle of the UK session, the stock traded about 8% lower, 20 percentage points higher than its initial collapse. Some of this has an eye to the gruelling decline of around 73% the shares have already suffered over three years.
Dixons is also differentiated from a host of troubled high street retail stories by cash. To be sure, cash from continuing businesses fell to £217m from £293m over the last financial year, in line with the biggest net income retreat in 10 years.
h3 Dixons Carphone – cash from operations/free cash flow - 2012-2019/h3
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