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Dixons Carphone (DC.) has become the latest company to be added to the list of blue-chip stocks this week issuing a profits warning. The UK’s largest electronics provider announced that headline FY pretax profit will be 11-28% lower than last year, despite a 6% YoY increase in LfL sales in the three months to June. Following on from WPP’s 11% fall yesterday and Provident Financial’s 66% share price capitulation on Tuesday, the mobile phone retailer joins the splinter group of companies subject to considerable investor flight over the past three sessions.
The latest profit warning comes as the company warns of a slowdown in consumer demand for new mobile phones. The lack of innovation from companies such as Apple and Samsung (with their top-of-the-market iPhone and Galaxy models) has dented the need for consumers to purchase the latest offering from producers, exacerbated by the fact that growing homogeneity between rival products means that they are indistinguishable from each other in a day to day capacity. With no significant upgrade needed in order to access amenities such as 4G, and software updates freely available to older models, consumers are holding onto their phones for longer; especially given that FX fluctuations have made the relative price of handsets considerably more expensive for UK consumers.
The company also noted that the EU’s decision to remove roaming charges within the region would likely hurt earnings, while the prospect of Sterling falling further against peers would likely only see prices of new models rise. Not wanting to presume that the latest offerings from Apple and Samsung (iPhone 8/Galaxy Note 8) will see consumer demand for new models spring back to life, Dixons sees this year’s core trading profitability in-line with last year.
Far from being the high growth market that mobile phone retailers once found themselves in, the need for reinvigoration across both manufacturing and retailing has provided its latest victim.
Despite having traded as much as 18% off session lows thanks to hints of support at 160p, the company’s shares are trading -50% year-to-date & -65% from than early 2016’s 506.5p all-time highs.
Henry Croft, Research Analyst, 24 August 2017
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