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Currys - sales remain under pressure

Currys' half-year revenue fell 4% to £4.2bn, ignoring exchange rate impacts, with sales declining in all regions.

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Currys' half-year revenue fell 4% to £4.2bn, ignoring exchange rate impacts, with sales declining in all regions. This comes as consumer spending remains under pressure, and Currys shifted its focus to more profitable sales at the expense of market share.

Underlying operating profit increased from £29mn to £31mn, largely due to operational cost-cutting efforts.

Net debt rose from £105mn to £129mn. Free cash outflow improved from £86mn to £10mn, helped by a reduction in inventory levels.

Full-year and longer-term guidance has been maintained. The sale of its Greek business is expected to complete in the first quarter of 2024, and should bring in net cash of around £156mn.

The group decided not to announce a dividend payment.

The shares rose 9.4% following the announcement.

View the latest Currys share price and how to deal

Our view

Currys' half-year profits came in slightly ahead of market expectations. Weak consumer demand across all geographies is being offset largely by strong cost-cutting efforts.

But there's no getting around it, Currys is still in a sticky spot. Consumers are simply struggling to justify discretionary spending on TVs, computers and gadgets amidst a cost-of-living crisis. This is offsetting a better performance in domestic goods, which suggests customers, although still spending, are becoming more selective.

In the Nordics region, the second largest segment, the market remains extremely tough. Almost all categories saw sales decline, and inflationary cost pressures remain a force to be reckoned with. A recovery here will be key to a shift in market sentiment and profitability.

Market share slipped lower as Currys shifted its focus towards more profitable sales, rather than compromising on price to help offload inventory faster. While there are negatives to this, we're supportive of holding firm on this front and it's helped improve gross margins across the business.

Despite all the challenges, there are some bright spots.

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 likely due to the more personal touch, stores have been outperforming online.

The group's services channels have also been a beacon of light. Services typically have higher margins than goods sales, so can help to relieve some of the pressure of the group's falling revenues.

And the sale of its Greek electronics retailer, Kotsovolos, should bring in around £156mn of net cash. That will provide a welcome boost to the group's balance sheet, as well as allow management to sharpen its focus on the remaining regions.

We're expecting an update on managements' plans for this extra cash before the end of the financial year. A reinstatement of dividend payments could be on the cards, although nothing is guaranteed.

The valuation is well below the long-term average, reflecting the short-term challenges. Management is making some decent strategic progress, but consumer electronics will be a challenging place to be as spending power comes under increasing pressure. A great deal also hinges on a recovery in the Nordics, and until that happens, group performance is likely to be lacklustre.

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
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 14th December 2023