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Investors dial in on Dixons as it holds divi steady and boasts about record Black Friday

The plunge in first-half profits was already flagged back in September but investors seemed happy with plans to restructure Carphone Warehouse and the trading outlook for Christmas
phone shop
“Simply put, the latest [phone] models aren’t prompting the same scramble to the tills they used to”

Dixons Carphone Plc (LON:DC) endured a challenging first half of the year, but its decision to hold the dividend steady coupled with a solid outing from its electricals division kept investors tuned in.

The markets already knew profits would plummet thanks to August’s profit warning and they duly did, falling 60% to £61mln (H1 2016: £154mln) in the six months ended October 28, partly because of an unfavourable revaluation of network receivables and changes to its insurance contracts.

Caprhone Warehouse to be restructured

Dixons’ Carphone Warehouse business didn’t help matters either, with like-for-like sales down 3% as cash-strapped consumers hold on to their handsets for longer instead of replacing them as frequently as they once did.

On top of that, the delayed launch of the iPhone X this year also affected first-half sales, although this should provide a little boon in the second half.

The mobile phones division will now be overhauled in a bid to deliver a simplified, more profitable operation.

Full-year guidance lowered

Chief executive Seb James said: “We recognise that the performance of the mobile division needs addressing, and are taking action to adapt our model in order to cement our place in a changing world.

“We will update the market on these developments in due course, but we believe that we can, over time, reduce the complexity and capital intensity of our mobile business model, and increase the simplicity and profitability of what we do.”

Another area of disappointment was a lowering of full-year guidance, with Dixons now expecting profits for the year to come in at between £360mln and £400mln this year, down from its previous forecast of between £360mln and £440mln.

With the bad stuff fairly well-flagged, investors instead decided to focus on the more optimistic comments in Wednesday’s statement.

Record Black Friday and steady divi

The FTSE 250 firm - which also trades as Curry’s and PC World in the UK - has increased its market share in the key electricals and white goods markets, with sales in that division up 7% in the first half.

Dixons Carphone also said the start to its peak Christmas trading period has “gone well” with sales records being broken across all off its territories, including a record Black Friday – an increasingly important date in the calendar for retailers on this side of the pond.

The interim dividend was kept steady at 3.5p, while the board repeated its intention to also maintain the total full-year dividend at 11.25p.

Plenty of challenges but encouraging

“While there are still plenty of challenges ahead, this more resilient showing has given the group the confidence to say it’ll be holding the dividend steady this year, boosting the shares after a painful period in the doldrums,” wrote Hargreaves Lansdown analyst George Salmon.

“However, the main challenge facing the group is in mobile. Simply put, the latest models aren’t prompting the same scramble to the tills they used to.”

Expect store closures

“For simpler and less capital intensive, read store closures,” said ETX Capital market analyst Neil Wilson.

“With over 700 Carphone stores in a total estate in excess of 1,000 across the group, there is ample opportunity to rationalise the Carphone estate and improve profitability in mobile while still retaining a dominant market position.”

Shares jumped 4.5% to 175p on Wednesday morning.

--Updates for share price and analyst comments--

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