Currys may be managing costs better but with sales down year-on-year and the Nordics continuing to underperform prospects in 2023 “remain bleak.”
Shares moved 5.5% higher thanks to raised profit guidance, aided by a better-than-expected performance in the UK and Ireland.
Performance on these shores and across the Irish Sea wasn’t driven by sales, which were down 7% on last year, but margins and savings improvements.
Measures helping drive down costs included “structural changes” which are saving £25mln each year and an amendment to the fixed charge cover covenant on the group’s £500mln revolving credit facility, which has been renegotiated to 1.5x from 1.75x until October 2024.
Margins also benefited from the success of its omnichannel offering which is catering to shifting consumer shopping habits.
Customers take advantage of ‘face-to-face’ advice from experts over the phone, which helps drive up to two-thirds of in-store sales.
“Its investment in online continues to pay dividends as more consumers utilise this channel compared to 2019,” said Zoe Mills, lead retail analyst at GlobalData.
Nordic problems
However, the Nordic problem continues to weigh on overall performance, and one can’t help but wonder how bullish today’s trading update would’ve been if not for the Scandinavian nations.
Currys was initially undercut by competitors that heavily discounted in the region last year to get rid of excess stock as demand slumped because of the economic climate.
The problem initially seemed short-term but has since become a “lingering” issue, according to Russ Mould, an investment director at AJ Bell.
While stock levels are down 10%, the region is likely to weigh on the group until inventories and demand normalise.
How long that could take is anyone’s guess which raises the question, should Currys dispose of its operations there?
“AO’s exit from both the Netherlands and Germany has highlighted retailers should not be afraid to streamline operations and focus on key areas of their propositions,” said Mills.
The recent appointment of Fredrik Tønnesen as Nordic’s CEO suggests the group isn’t considering a sale anytime soon, but if its second-largest market continues to weigh on overall performance then prospects 2023 and beyond “remain bleak.”