LONDON (Reuters) - Dixons Carphone (DC.L), Britain’s largest electricals retailer, said on Wednesday trading in its home market was holding up, confounding fears that a squeeze in consumers’ spending power would dent demand for televisions and washing machines.
British consumers have been hit by a sharp rise in inflation, caused in large part by the fall in the value of the pound since Britain’s vote to leave the European Union, and by a slowdown in wages growth. The housing market is also cooling.
On Tuesday, surveys showed UK consumer confidence plunged following the ruling Conservative Party’s election flop, which produced no clear winner, while department store Debenhams (DEB.L) cautioned that trading was volatile. Earlier this month, sofa retailer DFS Furniture warned on profit.
But Dixons Carphone, which trades as Currys, PC World and Carphone Warehouse, in the United Kingdom and Ireland, said its electricals business, which it regards as a good bellwether of how consumers are behaving, had continued to trade robustly since its April 29 year end, though it did not give figures. Fiscal first-quarter numbers are due on Sept. 7.
“All we know is they (consumers) ... seem to still be buying TVs from us,” Chief Executive Seb James told reporters after the group beat forecasts with a 10 percent rise in annual profit and said it was “well positioned to flourish” despite a tough economic outlook.
“We think we are gaining (electricals) market share gently but we think the consumer is OK so far. We’re not observing any radical shifts in behaviour or big changes in volume demand or anything of that sort at the moment,” he said, noting that the mobile phone market “was a bit choppier”
Though Dixons Carphone has had a strong run of trading over the last year, its shares have fallen 17 percent so far in 2017. They reversed early gains to be down 0.5 percent at 1301 GMT.
The decline reflects the group’s exposure to high-cost goods and perceived vulnerability to a fall in shoppers’ real earnings.
“The (stock) market’s just very nervous and uncertainty in the environment, whether that’s economic or political, makes people nervous and our business is discretionary,” said Finance Director Humphrey Singer.
But he stressed the resilience of Dixons Carphone and the work it has done to rationalise its store estate, reduce costs and offer a wider range of products and services less susceptible to the vagaries of consumer confidence.
James did express concern that Britain’s exit from the European Union could be damaging.
“I really pray that our political masters don’t do something that’s going to end up really causing a profound shift in the economy for a long period of time. Because if they do, we won’t forever be immune,” he said.
Dixons Carphone, which also trades as Elkjop and Elgiganten in Nordic countries and Kotsovolos in Greece, reported a record underlying pretax profit of 501 million pounds in its 2016-17 financial year. Revenue increased 9 percent to 10.6 billion pounds, with growth in every region, and the dividend was raised 15 percent to 11.25 pence a share.
“Dixon Carphone’s valuation in our view wrongly prices in a decline in profits in the year ahead, ignoring its strong market position and self-help opportunities,” said Investec analyst Alistair Davies, who has a “buy” rating on the stock.
Editing by Mark Potter and Jane Merriman