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Currys – sales return to growth

Currys raises pre-tax profit guidance as recovery continues and the group returns to growth.
Currys - sales continue to fall

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Currys' like-for-like revenue grew 2% in final quarter, with sales growing in all regions. In the UK & Ireland, there was improved trading momentum with cost savings more than offsetting inflation.

The sale of its Greek business was completed towards the year-end and generated £156mn of net cash. The group plans to use this money to pay down debt levels.

In the Nordics region, full year underlying operating profit is expected to land ahead of consensus, with sales growing and margins benefiting from higher customer adoption of solutions and services. Pre-tax profit guidance has been upgraded and is expected to land between £115-£120mn, ahead of market expectations. Year-end net cash is expected to be around £95mn.

The shares rose 8.2% following the announcement.

Our view

Curry’s trading update was more upbeat than we’re used to, with a return to growth in the final quarter and positive signs from the Nordics. Takeover speculation grabbed headlines back in March, but with both parties having backed out of talks, trading performance is firmly in focus.

Its results have been underwhelming in recent times. Consumers have simply struggled to justify discretionary spend on high ticket item like TVs, computers and gadgets. But slowing inflation, strong wage growth and the prospect of UK interest rate cuts gives hope to the prospect of these headwinds easing.

In the Nordics region, the second largest segment, the market remains tough but there are signs of progress. Like-for-like sales in the region returned to growth, following declines during the crucial Christmas season. Continued recovery here will be key to a shift in market sentiment and profitability.

Last we heard, market share in the region 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 the challenges, there are some bright spots.

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 being felt.

And the sale of its Greek electronics retailer, Kotsovolos, has generated £156mn of net cash, and should allow management to sharpen its focus on the remaining regions. The plan is to use some of the funds to pay down debt levels, strengthening the balance sheet. This brings with it the potential to return any surplus cash to shareholders in the form of a dividend. However, this is not guaranteed and we caution against any expectation of continued payments over the near-to-medium term, given the group's struggling performance and negative free cash flows.

The group’s valuation has remained elevated despite no formal takeover bid materialising. Although sales have been stronger than expected, consumer electronics will continue to be a challenging place to be as spending power remains under pressure. Key to convincing markets that the recovery is now in full swing will be continued progress in the Nordics. While the balance between sales and margins continues to improve, it’s essential that encouraging momentum is maintained if the share price is to avoid slipping back to pre-offer levels.

Currys key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. 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
Guy Lawson-Johns
Equity Analyst

Guy works as an Equity Analyst within the share research team, delivering current research and analysis on individual companies as well as broader sectors.

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Article history
Published: 14th May 2024