Shares in Currys (CURY) cheapened 11% to 110.4p after the electrical goods retailer warned it is seeing weaker demand in the run-up to Christmas and that ongoing supply chain issues are impacting product availability.
These negatives overshadowed positive first half results from the laptops-to-smart TVs seller, which remains confident in meeting guidance for full year adjusted pre-tax profit of ‘around £160 million’.
This maintained guidance is underpinned by Currys’ strong performance in the half to October 2021, with pre-tax profit improving from £45 million to £48 million year-on-year as group like-for-like sales grew 15% on a two-year basis.
MARKET SHARE GAINS
‘We grew colleague engagement and customer satisfaction, gained market share and stabilised gross margins in the UK, grew profits and generated strong cash flow,’ enthused CEO Alex Baldock, stressing that technology is now ‘more important than ever to people’s lives, and we’re best-placed to make the most of that.’
Unfortunately, investors were more focused on the news Currys has seen some impact on product availability and on sales of certain in-demand products due to global supply chain challenges.
And after a strong first half sales performance, the retailer warned market demand ‘has softened in the run-up to Christmas’.
Currys also cautioned that the immediate outlook has ‘become more uncertain, with the omicron Covid-19 variant and associated government restrictions potentially further dampening market demand.’
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould commented: ‘Currys specifically references the new variant, and it may have also seen demand for Christmas gifts brought forward as shoppers looked to get ahead of potential shortages. While it has done a decent job of mitigating them, Currys is not immune from supply chain issues and extra costs itself.’
Mould said the big danger is that having enjoyed a bumper period after the pandemic hit, as people splashed out on consumer electronics, the same level of demand just isn’t there anymore.
‘While Currys is sticking with its full year guidance for now, thanks to its strong first half, there is an obvious risk the second half is sufficiently bad to require that guidance to be trimmed or, in the worst case scenario, slashed.
‘Shareholders can take some comfort from the company’s strong balance sheet position and faltering competition which should see Currys hold on to market share gains. Underpinning this is Currys’ improved customer service, something which could prove crucial to its fortunes in the longer term.’
Disclaimer: The author and editor of this story both own shares in AJ Bell Limited, owner and publisher of Shares magazine