A profit warning at electronics retailer Dixons Carphone (DC.) has sent investors streaming for the exits, wiping off a fifth of the company’s value as the stock drops 20% to 181.8p.

Dixons has blamed challenging conditions in the UK mobile phone market as people hold onto handsets longer due as the weaker pound has pushed up prices.

In response to the negative trend, Dixons has decided to invest in its margins to maintain market scale as the company believes that ‘overall market demand will not correct itself this year.’

Another factor that will hit profitability in the short-term is selling its honeybee software product as a software-as-a-service instead of upfront sales to drive higher value in the longer term.

All these negative factors means the company now expects to deliver pre-tax profit of £360m to £440m in 2017/2018 against previous guidance of £485m to £490m.

WHAT ARE ANALYSTS SAYING?

And Canaccord Genuity’s Sanjay Vidyarthi says the trimmed guidance represents a 30% downgrade compared to consensus of approximately £500m.

He also believes that management did not provide ‘sufficiently robust answers’ during its preliminary results in response to some of the market issues.

EU roaming legislation changes are also likely to impact returns. The retailer estimates that the changes will hit profit by between £10m and £40m.

‘This is likely to be a one-off revaluation on the receivables this year and should not repeat next year’ comments UBS analyst Andy Hughes.

In a spot of good news, Hughes flagged that like-for-like sales in the UK, Nordics and Greece beat expectations, reflecting a stronger than anticipated electricals market and growing market share.

Liberum analyst Adam Tomlinson has put his recommendation ‘under review’ following the profit warning due to the ‘relatively broad’ pre-tax profit range and upcoming key factors in Dixon’s future performance.

These include the launch of the new iPhone 8 and trading over the Christmas peak period.

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Issue Date: 24 Aug 2017