Dixons Carphone (LSE: DC) is the latest high street casualty. Its share price opened 27% down on Thursday morning after full-year results revealed a 22% fall in headline pre-tax profits. The share price recovered later in the morning, but it’s still down 13% at the time of writing.
Alex Baldock, chief executive of the electronics and mobile phone retailer, also warned the company will be “taking more pain in the coming year, when Mobile will make a significant loss.”
Net debt rose from £249m a year ago to £265m, and the dividend has been slashed from 11.25p per share to 7.75p.
The problems appear twofold, both exacerbated by the financial squeeze facing consumers. Buyers, it seems, are upgrading their phones less often, but I really don’t see why that should have come as any great surprise. Technological booms flatten out when the technology matures, and the benefits of new phones are becoming more and more marginal.
No differentiation
The other problem is that people are shopping around and getting their phones and SIMs individually when the price is right. And that erodes the margins of big retailers trying to put together more profitable packages.
What would I do? Baldock has been at the helm only a little over a year, and the latest news adds to a profit warning released shortly after his appointment.
When I looked at the stock a few months ago I was upbeat. But I’ll put my hands up and say I got it wrong — I failed to make allowances for further bad news coming before things got better, which happens a lot after a new boss takes charge.
No, I’m increasingly drawn to my new investment rule — don’t buy a turnaround until after it’s turned around.
Online sales
The growing dominance of online retail is hurting bricks and mortar retailers like Dixons Carphone, and that brings me to a company I think has been managing the shift really quite well and without any fuss — but whose share price has been suffering.
I’m talking of N Brown Group (LSE: BWNG), the owner of the JD Williams, Simply Be, Ambrose Wilson, and Jacamo brands.
The company’s last set of full-year results were, I thought, pretty decent, especially in the current retail market. And a first-quarter update Thursday suggested to me the firm is managing the shift from offline to online sales as well as can be expected.
Total womenswear revenue dropped 3.3% while menswear revenue gained 7.7%. The latter made a relatively small impact, though, with overall product revenue down 5.4%. But what’s interesting is that online revenue is growing quite nicely, with womenswear up 5.7% and menswear up 8.8%.
Well managed?
Those are not earth-shattering growth figures. But overall, I get the feeling I’m looking at a company that’s managing the transition at least adequately. That was reinforced by chief executive Steve Johnson’s statement: “We have a clear strategy to deliver profitable digital growth and our full year expectations are unchanged.”
Right now, I’m keeping away based largely on my turnaround rule (because we’re sort of looking at a turnaround from weakening traditional sales channels). But I do think I see a well-managed company worth keeping an eye on.
