- Final dividend axed to protect balance sheet
- Nordics division feeling pinch
- Baldock bemoans ‘unforgiving competition’
Investors hoping for a rally at unloved electricals retailer Currys (CURY) were left severely disappointed today as a cocktail of negatives in the full year results sent the shares plunging 13% to 46.6p.
Not only did the white goods-to-electronics seller report a drop in sales and profits amid ‘unforgiving competition’ in all markets, it also axed the dividend on a very cautious outlook for consumer spending in order to proactively protect the balance sheet in a move which could mark the start of a deluge of retail sector dividend cuts.
Having benefited from the boom in technology spending during the lockdowns, Currys is now suffering as the cost-of-living crisis and weak housing market crimp demand for white goods and electricals, with like-for-like sales down in all markets save for Greece last year.
One shareholder who won’t be happy with today’s price action is Frasers (FRAS), the Mike Ashley-controlled conglomerate with a 10.4% interest in tech products purveyor Currys.
The two retailers are exploring a number of avenues for collaboration, while Frasers has also amassed a 22.2% stake in Currys’ competitor AO World (AO.).
NIGHTMARE IN THE NORDICS
Currys’ results for the year ended 29 April 2023 showed group adjusted pre-tax profits of £119 million, towards the top end of guidance as cost-cutting helped to improve earnings in the UK and Ireland business.
However, this was down £73 million year-on-year due to lower profits in the Nordics, where falling consumer demand exacerbated by heightened discounting by competitors brought Currys’ long-run Scandinavian sales and profits growth record to a shuddering halt.
While the FTSE 250 retailer reported a substantial statutory loss of £450 million for the year, this was a bit misleading as it included a £511 million accounting charge relating to the 2014 merger of Dixons and Carphone and didn’t represent cash going out of the business.
Trading at the start of the year has been consistent with the second half of last year, so Currys maintained current year and longer term guidance, but CEO Alex Baldock is ‘wary of optimism about consumer spending power’ and as a result, Currys is being ‘prudent in our planning, and in further strengthening our balance sheet.’
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould pointed out that the problem in Currys’ Nordics business was only supposed to be short-term in nature.
‘Yet we’re well into 2023 and the electronics retailer’s Scandinavian division is struggling to such an extent it has had to pull its dividend,’ he explained.
‘This is a salutary lesson in the reality that problems often take much longer to fix than companies initially think.
‘The big frustration for Currys is it has made decent strides in getting its business in the UK and Ireland on track, despite the difficult consumer backdrop putting pressure on sales. Profit in this part of the business was up by an eye-catching 45% as it eked out significant cost savings to compensate for lower volumes.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Tom Sieber) own shares in AJ Bell.
