Dixons Carphone plans for lean times

Dixons Carphone, Britain’s largest electricals and mobile phone retailer, is planning for tougher times after the group beat forecasts with a 19% rise in first-half profit.
Dixons Carphone plans for lean times

The company has had a strong run of earnings so far in 2016, but its shares have fallen 30%, reflecting its exposure to high-cost, big ticket goods and perceived vulnerability to any drop in consumer spending.

Its shares had risen ahead of the results and were up initially yesterday before dropping sharply. Dixons Carphone was the highest faller in London yesterday, with a 5.8% drop.

Analysts said Dixons Carphone’s performance was not strong enough to justify a boost to earnings forecasts.

“The shares have had a good run [this week] and a lack of upgrades today has led to profit-taking,” said independent retail analyst Nick Bubb.

Analysts also fear many retailers may have to raise prices next year as a slide in sterling after the Brexit vote has increased import costs, potentially squeezing consumer demand.

Dixons Carphone — which trades as Currys, PC World and Carphone Warehouse in Britain and Ireland — said it had still not seen any effect on trade in its home market as a consequence of Britain’s vote in June to leave the EU.

It said it remained optimistic about its ability to continue to gain market share in all its key markets, while its investment plans had not changed because of Brexit. But CEO Seb James said the firm was planning for the possibility of more uncertain times.

Elsewhere, Spain’s Inditex, the world’s biggest clothing retailer and owner of Zara, used its “fast fashion” model to adapt to warmer than usual autumn weather, speeding up its sales growth in recent weeks and staying ahead of slower-moving rivals.

Unlike the Spanish firm, Abercrombie & Fitch and Gap posted dismal fourth-quarter sales last month.

Inditex reacts to changing fashion trends and weather by keeping its manufacturing bases close to its distribution centre in Galicia, northern Spain.

Items are designed, made, and shipped to stores often in less than a month, boosting profitability. Net profit for the first nine months of the year rose 9% to €2.2bn. Apart from Zara, which makes up two-thirds of sales, Inditex also owns Pull&Bear and upmarket label Massimo Dutti.

The like-for-like sales growth compares with its next biggest rival H&M’s reported 10% year-on-year increase in local-currency sales in October. H&M publishes November sales today. Analysts expect H&M and others to have been hit by the warmer autumn weather.

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