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Currys - downgrades profit expectations

Currys saw half year revenue fall 8% on a like-for-like basis, down to £4.5bn. That reflected declines in both the UK & Ireland and...

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Curry's saw half year revenue fall 8% on a like-for-like basis, down to £4.5bn. That reflected declines in both the UK & Ireland and International business segments, as consumers are feeling the effects of the cost-of-living crisis.

The group's underlying operating profit fell from £88m to £29m. In the UK & Ireland business, underlying operating profit rose £5m, to £25m, as higher margins and cost-cutting measures more than offset declining sales. However, heavy discounting by competitors meant the International business had a "difficult" half, which saw underlying operating profit fall by 94% to £4m.

Currys now has a net debt position of £105m, compared to a net cash position of £250m this time last year. This was largely due to a 54% drop in operating cash flow, to £60m, as international profitability fell.

Currys downgraded its adjusted profit before tax guidance from between £125-£145m to £100-£125m.

The group declared a dividend of 1p per share.

The shares fell 7.1% following the announcement.

View the latest Curry's share price and how to deal

Our view

Half-year results were filled with ominous signs for the tech retailer.

With the cost-of-living crisis raging on, consumers' discretionary spending has come under pressure. Due to selling a lot of big-ticket items such as TVs, mobile phones and washing machines, the group's very exposed to a reduction in consumers' discretionary income. This was felt on the top line as revenue fell in both its UK & Ireland and International markets.

In the Nordic regions, which is the second largest division, operating profits plunged. Low demand left competitors with excess stock, leading rival stores to slash their prices. Currys kept its prices the same, resulting in a painful display. Management see this as a short-term problem and we're inclined to agree. The region is fundamentally healthy and, in time, Currys expects profits to recover.

Amidst soaring inflation and chronic staff shortages, wages have risen by 16% in the past 13 months. And with roughly 32,000 employees on its books, it's taken a toll on operating margins which are very thin to begin with.

Back in July, Currys downgraded its operating margin guidance for 2023/24 from 4% to 3%. Because of recent developments, that target's had to be pushed back by a year. It's disappointing, but ultimately a necessary downgrade given current conditions.

It's not all doom and gloom.

One of the group's main attractions is its omnichannel model. You can enter a store and have access to the entire online shopping range or speak to an in-store expert in the comfort of your own house. These services help Currys attract and retain a customer once they've made contact and that's helping the group to retain its market share.

The group's taken cost-cutting measures to the next level this year. Measures included reducing the brightness of the TVs on display, as well as turning off every other light on the shop floor in a bid to reduce energy costs. That's helped to keep things ticking along in the UK & Ireland division.

Currys' business is highly seasonal, with a substantial proportion of its revenues, and any profits or losses, generated in the second half of its financial year. This includes the likes of Black Friday and the Christmas period, when typically, consumers splash out on the big-ticket items that Currys sells.

The next quarter's important and with operating margins running thin, at 0.6%, there's very little wiggle room if conditions worsen much more. That's reflected in a valuation that's below the long term average.

Currys key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 15th December 2022