After Brexit, there’s a second leave vote that’s worrying British retailers: Leave it on the shelf. Amid the uncertainty, fears are growing consumers will rein in spending on everything from cardigans to carpets.
Dixons Carphone, the electricals and mobile phone retailer, has offered a modicum of comfort — though you wouldn’t have guessed it by the share price reaction.
Announcing higher sales and underlying profit for the year to May 2, it said sales actually rose in the four days after the referendum.
Of course, it’s very early days. Spending on big-ticket items, including expensive electrical products such as TVs, would probably suffer from any caution. A slowdown in the housing market would exacerbate that.
As a result of those fears, the company’s shares have fallen 22% since the referendum.
But while broad concern about consumer spending is justified, particularly as electronics has notoriously thin margins for retailers, the punishment looks harsh.
Dixons Carphone said more than 90% of its sourcing costs were in sterling, easing the burden of the falling pound. Moreover, it generates about 35% to 40% of its revenue from mobile phone sales, according to RBC analysts.
Those should be more resilient than big ticket electricals. After all, Britons, like other nations, can’t live without phones.
Finally, Dixons Carphone is building other income streams, including operating US stores for mobile carrier Sprint.
It has also strengthened the balance sheet since the financial crisis. The group is a rare example of a merger that actually worked. Dixons Carphone concedes that volatility is “inevitable”.
It’s going to take a while for political turmoil to subside in the UK and to get a clear sense of the economic damage. That said, even after the post-Brexit decline in its shares, the company still trades at a premium to international rivals Best Buy and Fnac on a price-to-sales basis.
Even if shoppers do hold off on those flat-screen TVs or fancy coffee makers, it has the financial firepower to ride out a short-term storm.
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