Dixons Carphone Plc (LON:DC.) shares dived 18% in early trading on Tuesday after the electrical goods retailer warned that its current year profit will fall by 21% as its new chief executive cautioned that he needs to fix problems and close shops.
In a statement, the FTSE 250-listed firm said it expects its headline pre-tax profit for the 2018/19 financial year to be around £300mln, down from the £382mln it is forecasting for the 12 months ended 28 April 2018.
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The group’s chief executive Alex Baldock - who joined two months ago from online retailer Shop Direct - said that he planned to cut costs to help Dixons Carphone recover and has already started a process to simplify its processes.
As part of the cost-saving measures, Baldock said he planned to close 92 Carphone Warehouse standalone stores this year to help improve gross margins.
The new boss added: As in 2017/18, we are budgeting for a contraction in the UK electricals market and will use our scale to maintain our market share.
“We expect some cost increases in UK electricals, notably National Living Wage and IT depreciation, partially offset by gross margin recovery initiatives, including range optimisation, better availability and reduced levels of markdown.”
“Though there's plenty to fix, it's all fixable”
Baldock concluded: "Eight weeks in the business have cemented my optimism about Dixons Carphone's long-term prospects. I've found exceptional strengths, and though there's plenty to fix, it's all fixable.”
Dixons Carphone said its full-year group revenue was up 3% year-on-year in the 16 weekend ended April 28, with like-for-like sales up 4%.
The firm said UK & Ireland full year like-for-like revenue in the 16 week period was up 2%, and ahead 1% in the fourth-quarter, while its international business saw strong growth.
The group said it intends to maintain its full-year dividend at 11.25p.
Sharp share price drop
In early morning trading, Dixons Carphone shares were down 18.6% at 190p.
Independent retail guru Nick Bubb commented: “The share price of Dixons Carphone has been recovering strongly since new CEO Alex Baldock took over, on the back of vibes about strong trading ahead of the World Cup.
“But, out of the blue, the company has come out with a profit warning today!”
He added: “The issue appears to be that although headline of PBT of £382m for y/e April will hit City expectations that will be only down to an odd one-off £25m systems implementation benefit, given gross margin pressures in Q4.”