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Dixons Carphone grabs market share for electricals but margins may be suffering

Despite good sales, the City is left wondering about margins, with the fear Dixons may have been forced to heavily discount just to stay in the game

Dixons Carphone PLC - Dixons Carphone grabs electrical market shares but margins may be suffering

Dixons Carphone PLC (LON:DC.) outperformed the electricals sector over Christmas, but analysts want more clarity on profit margins before opening the champagne.

The electrical and telecommunications retailer gained market share both in-store and online, something that rival John Lewis Partnership failed to do.

READ: Dixons Carphone lifted as customers go for electrical goods at Christmas

Earlier, the company said like-for-like (LFL) sales in the electrical division inched up 2%, but a 9% drop in UK & Ireland mobile meant underlying revenues for the group as a whole were flat.

“In the context of Dixons’ recovery story, having everything apart from mobile move forward in terms of sales growth is still a positive result,” AJ Bell investment director Russ Mould said in an email.

However, the City is left wondering about margins, with the fear Dixons may have been forced to heavily discount just to stay in the game. Full-year guidance was unchanged with a predicted £90mln loss for the year to April.

“It is encouraging to see growth in electricals, suggesting the investment to improve customer proposition has not been wasted money,” Sophie Lund-Yates, analyst at Hargreaves Lansdown, said in an email.

“The decision to offer a price-promise in particular has helped the tills chime, but we are yet to see the impact on margins,” she added.

In the six months to October, gross margins receded 0.4 percentage points as it promised customers: “You won't get it cheaper. Full stop”.

The mobile challenge

The journey to recovery is far from being over, as the mobile phones division isn’t expected to break even before 2022.

This segment caused the company to swing to a £259mln loss in the year ended last April, compared to £289mln profit in 2018.

Dixons is pinning its hopes on a new offer scheduled to launch from May onwards.

"Rejuvenating its proposition will be essential in turning its fortunes around in a market that continues to suffer from longer consumer replacement cycles and a move to cheaper sim-only contracts," Zoe Mills, retail analyst at GlobalData, said in an email.

Shares rose 4% to 147.5p on Tuesday afternoon.

Quick facts: Dixons Carphone PLC

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