Shares in the owner of Carphone Warehouse have plunged by a third as it warned consumers were shunning handset upgrades due to higher prices caused by the slump in the pound.
In an unscheduled trading update, high street giant Dixons Carphone said annual profits would be lower than expected, sparking a sell-off by investors. Shares fell 33% in early trading.
The group, which also owns the Currys and PC World electrical brands, said it had seen “challenging conditions in the UK mobile phone market” after sterling’s weakness made handsets more expensive.
At the same time, rapid technical innovations – which have helped to drive the growth in phone sales – had slowed to become “more incremental”.
Image: The group said the weak pound had made handsets more expensive
Dixons Carphone chief executive Seb James said: “As a consequence, we have seen an increased number of people hold on to their phones for longer.”
Mr James said it was too early to say whether new phone launches would help reverse the trend – as Samsung unveils its Galaxy Note 8 “phablet” and with Apple expected to reveal a new iPhone next month.
But he said it was now “prudent to plan on the basis that the overall market demand will not correct itself this year”.
The group warned that it expected headline pre-tax profits for the current financial year to fall by as much as 28%.
It now sees earnings in a range of between £360m and £440m, down from £501m for the year to the end of April 2017 – below analysts’ forecasts of £460m to £485m.
The warning came in an update from Dixons Carphone covering the 13 weeks to 29 July.
It reported a 6% rise in like-for-like sales across the group, with 4% growth in the UK and Ireland – attributed to the performance of electrical goods sales.
But the concerns about mobile phone sales mean the group has decided to invest in maintaining its position as the market leader – and it admitted this would result in a “shortfall in profits for our phone business”.
The group also said it would take a hit of between £10m and £40m as a result of the EU’s decision to scrap mobile phone roaming charges, while profits would also be affected by the disposal of its Spanish business.
Source: Sky