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Currys - UK Electricals struggle over Christmas

Matt Britzman, Equity Analyst | 14 January 2022 | A A A
Currys - UK Electricals struggle over Christmas

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Currys plc Ordinary 0.1p

Sell: 98.85 | Buy: 99.00 | Change 2.05 (2.12%)
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In the 10 weeks ending 8 January 2022, like-for-like sales fell 5% compared to last year. This reflected declines in UK & Ireland and International, as the Technology market faced ''uneven customer demand and supply disruption''.

Full year adjusted profit before tax is expected to be around £155m, below the £160m guided last month.

Management is starting the planned £75m share buyback programme.

The shares fell 3.8% in early trading.

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Our view

With warnings at the half year mark, it's no surprise to see momentum slowing as we move into the new year. The group saw reduced technology demand and ongoing supply chain pressures over the Christmas period. The result was a reduction is full year guidance that wasn't well received by the markets.

But Currys has managed to make lemonade out of lemons over the past couple of years, building out its online presence.

The pandemic provided a huge boost to online shopping - an area Currys had lagged, but where it's been forced to up its game. That's a logistical triumph, and despite the return of in-store traffic, online sales are still well above 2019 levels. This highlights the value of innovations like ShopLive, which allow customers to get video help from Dixons experts at home. Face-to-face advice is a key competitive advantage, so preserving it was crucial in surviving the pandemic. It could come in handy if variant concerns keep people from venturing out in the months ahead as well.

The downside to online sales is they're not as profitable and the return of higher-margin store sales has proven to be a benefit in the first half. With operating margins thin, at 2.0% overall, reduced footfall for any reason could put profits under pressure.

Longer-term the group has its attractions. The aim is to outdo online rivals by offering a top-tier face-to-face service and multiple product categories under one roof. Customers won't mind paying more if they get a bit of help from a friendly and knowledgeable store assistant.

The group's closed all standalone Carphone Warehouse stores, which are now to be integrated into Dixons and Currys PC World, hopefully improving sales at larger sites while cutting costs. Going forward mobile should be a smaller but less capital intensive and hopefully profitable.

So confident is the group, it's starting a share buyback programme, and expects to end the year with a rather remarkable £100m net cash on the balance sheet. This is quite the about-turn for a retailer we were seriously worried about a year ago, although of course there are no guarantees.

Persistently high inflation remains an ongoing issue that could shift consumer behaviour. With less disposable income, big-ticket items like new TVs and washing machines typically move to the bottom of the shopping list.

A reinforced balance sheet gives the group room to manoeuvre and has allowed it to restart the dividend. The group boasts stronger foundations than many retailers emerging from the pandemic, which helps the long-term investment case. But there are plenty of short-term headwinds reflected in the valuation.

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Peak Trading Update (10 weeks to 8 January 2022)

UK & Ireland saw like-for-like (LFL) sales fall 6% over the period. This was driven by a 7% fall in Electricals where the group cited a 10% drop in the overall UK tech market. Strong sales in gaming and appliances were not enough to offset declines elsewhere. Online sales were up 29% compared to 2 years ago.

Year-on-year International LFL sales fell 3%, with online sales up 79% over a two-year period. As stores reopened in Greece, sales grew 18%. But that wasn't enough to offset a 5% drop in the larger Nordics region.

The group expects to finish the year with net cash of £100m. Operating profits margins are expected to push past 4% by 2023/24.

Currys key facts

  • Price/Earnings ratio (next 12 months): 7.8
  • 10 year average Price/Earnings ratio: 11.1
  • Prospective dividend yield (next 12 months): 4.0%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Find out more about Currys shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.