Finance / Dixons Carphone shares freefall as rising costs see people keeping older phones
Dixons Carphone shares freefall as rising costs see people keeping older phones
24 August 2017
Shares in Dixons Carphone went into freefall on Thursday after the firm warned over a Brexit profit hit as soaring costs for new mobile phones means people are holding on to older models for longer.
In an unscheduled trading update, the electricals giant said the pound's collapse following the country's decision to quit the European Union has meant an increase in shop prices for mobile devices and bemoaned "challenging conditions".
As a result, Dixons Carphone now expects headline pre-tax profit for the full year to be in the range of £360 million to £440 million.
This is down from analyst forecasts of between £460 million and £485 million and well below the £501 million booked last year.
Shares collapsed by over 25% as investors digested the news.
Boss Seb James said: "Over the last few months we have seen a more challenging UK post-pay mobile phone market.
"Currency fluctuations have meant that handsets have become more expensive whilst technical innovation has been more incremental.
"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 life cycle 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."
The pound has crashed 14% against the dollar and 17% against the euro since the referendum.
The net result has been an increase in import costs for retailers, who have then passed this on to already hard-pressed consumers.
Dixons Carphone also said it would take a £10 million to £40 million hit from changes to EU roaming legislation.
Mobile phone retailers take a cut of additional charges levied by telecoms firms, including roaming, but the EU’s decision to scrap roaming charges means they will now miss out.
To complete a miserable update, the retailer said changes to the way it sells its honeybee software product will also dent profits.
The trading update showed that UK like-for-like sales were up 4% in the period, while total sales rose 1%.
Across the group, which also operates in Scandinavia and Greece, sales were up 6%.
Mr James said he was encouraged by the UK performance in light of strong comparative sales following last year’s European football championship.
Retail analyst Nick Bubb said: “The Dixons Carphone share price has been drooping even lower in recent days, as if something was possibly amiss, so it’s good that the company has cleared the air today.
“But the profit warning will go down like a lead balloon in the City.”