Dixons Carphone warns of store closures as profits plummet by 60%

Dixons Carphone has warned it will have to reinvent its mobile business as rising handset prices and a slowdown in technological development prompt shoppers to cling on to their phones for longer.

Pre-tax profit tumbled 60% to £61m for the 26 weeks to 28 October at the group, which owns Currys PC World and Carphone Warehouse, while total sales nudged up 3% to £4.87bn.

Analysts warned of likely store closures as Carphone was dragged down by a 3% fall in like-for-like sales. The business has pledged to deliver a “simpler, less capital-intensive business”. In the second three months of the half year, mobile sales slumped 6%, although more than half of that drop was the result of the delayed launch of the iPhone X.

Neil Wilson, senior market analyst at ETX Capital, said: “For ‘simpler and less capital intensive’, read store closures.

“With over 700 Carphone stores in a total estate in excess of 1,000 across the group, there is ample opportunity to rationalise the Carphone estate and improve profitability in mobile while still retaining a dominant market position.”

The chief executive, Sebastian James, played down the prospect of widespread store closures or redundancies but told analysts: “We have a high cost base and we need to address that, and we always look at our store estate.”

He said later: “It is not the end of the world but we do need to update ourselves.”

James said the company would do more to sell broadband and TV packages alongside phone deals, update its IT systems to make them less complex and change the way phone packages were financed.

He said a 25% increase in the price of “flagship handsets” such as the iPhone, partly prompted by the fall in the value of the pound following the EU referendum, and the slowdown in technological progress meant that people were holding on to their phones for an average five months longer. As a result, more people are looking for sim-only contracts rather than two-year deals with a phone thrown in.

He said Carphone’s income from its share of phone users’ spending on calls and data on top of long-term contracts had also taken a hit, partly because income from roaming charges in Europe was down after the EU scrapped increased costs for calls, text and data.

James predicted that the high price of iPhone and Samsung was likely to prompt an influx of cheaper alternatives such as the Chinese brands Oppo and Huawei. “We’ll see more brands in the UK and that will be good,” he said.

The days of Carphone funding the price of these handsets as part of a package deal were numbered, he said. The company is in negotiations with networks about bringing in separate leasing deals funded by finance firms to help those customers who do not want to buy a phone outright.

UK profits fell from £130m to £34m in the period. The company had warned in August of a Brexit profit hit as the soaring cost of new mobile phones meant people were holding on to older models.

James said: “Throughout the period, we made a very conscious decision to fight hard to drive sales in our product offering, and this has impacted mobile profitability.”

Profits were also hit by a £58m charge due to the revaluation of income received from mobile networks related to roaming charges in Europe and insurance contract terms.

However, the retailer said it had had a good start to peak trading before Christmas, following record Black Friday sales. Like-for-like sales of electricals rose 7% across the group and 6% in the UK.

The firm expects full-year profit to come in at between £360m and £400m. Shares rose more than 8% to 181.6p following the update.