Electrical Retailer Dixons Carphone Shares Price Plummets 30% After Warning Profits are to Fall

Electrical retailer Dixons Carphone on Thursday warned investors it will deliver lower-than-expected profits.Shares fell more than 30% at the start of trading.
 
Dixons Carphone, which owns Dixons and Carphone Warehouse, told investors to expect pre-tax profit of £360 million to £440 million this year. That represents a dip on last year's figure of £501 million and below early analyst forecasts of profit between £465 million and £495 million.
 
CEO Seb James blamed the profit warning on Brits hanging on to their mobile phones for longer, changes to EU roaming charges, and a change to the way it sells its Honeybee sales software.
 
'People hold on to their phones for longer'
"Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental," said James.
 
The pound has collapsed against the dollar, euro, and other major currencies in the wake of last year's Brexit vote, making importing handsets more expensive and therefore pushing up the price of smartphones.
 
James, who went to university with David Cameron and Boris Johnson, said: "As a consequence, we have seen an increased number of people hold on to their phones for longer and while it is too early to say whether important upcoming handset launches or the natural lifecycle of phones will reverse this trend, we now believe it is prudent to plan on the basis that the overall market demand will not correct itself this year."
 
Neil Wilson, an analyst with ETX Capital, says in a note on Thursday monring: "Brexit matters here – the weak pound exchange rate has made devices more expensive and consumers are less willing to replace old handsets so quickly.
 
"The lack of a significant upgrade cycle from Apple has played a part and we might expect an improvement when the iPhone 8 is released, which might be towards the end of the year, although the chief executive Seb James isn’t betting the farm on the next Apple device."
 
Roaming charges cost up to £40 million
The EU scrapped roaming charges in June and Dixons Carphone said this will also hit revenues, costing it anywhere between £10 million and £40 million in one-off costs this year.
 
Dixons Carphone is also changing the way it sells Honeybee, its new software platform for retailers. The company is moving to a subscription model for Honeybee rather than just upfront sales. While it hopes this will make it more sustainable in the longterm, the changes mean Dixons Carphone expects the division to "generate limited profits overall."
 
Investors have not taken the update well. Shares crashed over 30% at the open in London on Thursday morning, although ETX Capital's Wilson points out that "7.75p, or around three percentage points, of that is due to the stock going ex-dividend today as well." Dixons Carphone's share price is now at a five-year low.
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