Thursday 20 June 2019 11:07 am

What's wrong at Dixons Carphone? Analysts react to loss as shares dive

Dixons Carphone revealed huge losses of £259m this morning and warned there was “more pain” to come in its struggling mobile phone division.

It blamed the rapidly changing mobile phone market in the UK and said it would take two years to break even amid a transformation plan.

Read more: Dixons Carphone shares plunge as it swings to £259m loss

The mobile phone and electrical retailer said pre-tax profit for 2020 would be £210m, far below expectations of £300m.

Shares plunged 20 per cent before recovering slightly to 13 per cent down for the day – so just what has gone wrong for Dixons Carphone?

Changing mobile phone habits

AJ Bell investment director Russ Mould said the changing nature of mobile phone habits had left the company “in a pickle”.

He said: “It feels like the trend for switching phones to the latest model every year is truly a thing of the past.

“The latest phones are perfectly adequate to keep for a much longer time and consumers are finding better value by going for SIM-only deals rather than locking into a long-term contracts with a specific network.”

Mould said the soaring popularity of Whatsapp had shifted consumers away from texting, a key sales point for mobile phone networks trying to lure customers with unlimited text packages.

He added: “Dixons Carphone is a real loser from this shifting landscape.”

“While elsewhere in the group the five-year plan is going to plan – if not a little better – the mobile phone business is under considerable strain as customers demand flexibility, are sticking with their old phones for longer and Carphone is dragged down by binding network contracts,” Fidelity International associate director Emma-Lou Montgomery said.

Mobile business on life support

Head of markets at interactive investor, Richard Hunter, said the mobile division was “on life support”, draining capital and resource prior to its integration the electricals business.

He said: “The rapidly evolving nature of this segment has threatened to leave Dixons behind and thus, as a matter of urgency, the company has renegotiated its network contracts, although such benefits will take time to wash through.

“Elsewhere, tepid group revenue growth, lower free cash flow, higher net debt and a previously slashed dividend are far from being cause for celebration.”

UK mobile plan ‘much needed’

Brewin Dolphin senior investment manager said that despite leading to ballooning losses in the next couple of years, the “massive” transformation programme to the mobile division was necessary.

“This type of intervention is much needed: the division has weighed down Dixons Carphone in recent years and arguably eaten the cash flow and working capital benefits delivered elsewhere.”

Online push

Online growth in its electrical business was a major plus for Dixons Carphone in its results, with the company outperforming rivals and grabbing market share.

Plans to increase its online products by 40,000 over five years were on track, it said, and sales were significantly up.

Read more: Dixons Carphone hit with £30m fine for mis-selling mobile phone insurance

“The group is transitioning to become more of an online seller, where this year online accounted for 28 per cent of sales and increased by nine per cent,” The Share Centre analyst Helal Miah said.

“It will need to continue to head in this direction while remaining competitive against others such as Amazon and Argos. Yet the sentiment among investors towards the retail sector isn’t great,” he added.