15th Dec 2022 14:56
(Alliance News) - Currys PLC on Thursday reported a sharp swing to an interim loss, due to an impairment and rising costs, as revenue declined amid disruption in the Nordic region.
interactive investor's Richard Hunter said there was "little dressing up some ugly numbers" in the release.
The London-based electronics retailer posted a pretax loss of GBP548 million in the six months ended October 29, swinging from a profit of GBP48 million in the previous year. Revenue fell 6.5% to GBP4.47 billion from GBP4.79 million.
Currys booked an impairment of goodwill of GBP511 million in the half-year, compared to no such impairment a year before. It said this arose at the time of the Dixons Carphone merger in 2014.
ii's Hunter noted that even stripping this out on an adjusted basis, pretax profit still fell by 17% in the period. The main culprit, he argued, was the firm's international business.
"The International business, which currently accounts for 49% of overall revenues, is the main culprit. In the Nordics region in particular (42% of overall revenues), new entrants to the space have relied on heavy discounting of goods to announce their arrival, partly driven by excess stock which they are now selling at basement (and virtually unprofitable) prices," Hunter explained.
"In turn, Currys has had to react by eroding its margins, and a decline of 94% in earnings over the period is the resultant outcome."
In the Nordics, revenue was down 3.7% to GBP1.89 billion from GBP1.96 billion. In the UK & Ireland, revenue dropped by 10% to GBP2.29 billion from GBP2.55 billion.
Chief Executive Officer Alex Baldock viewed the drop in UK&I revenue as resulting from short-term disruption but admitted that its international market had been experiencing a "painful" period.
"Our international markets have experienced the same pressures as the UK, with softer demand coupled with cost of goods sold inflation," Baldock said.
This lower demand left domestic competitors with excess stock, which they are now selling for heavy discounts, the CEO explained. Baldock described this as substantially disrupting the market, but he expects these pressures to be temporary, with demand anticipated to normalise.
Currys now expects full-year pretax profit to be between GBP100 million and GBP125 million, downgraded from previously GBP125 million to GBP145 million.
In the first six weeks of the second half, trading has been in line with the first half, Currys added.
Shares in Currys were down 5.1% at 61.95 pence on Thursday afternoon in London. In the year-to-date, the stock was down 48%.
"A recent solid run for Currys' shares had suggested the electronics retailer was moving towards a better place, supported by a resilient balance sheet. That optimism is punctured by today's first half results which are accompanied by the bad smell of a profit warning," concluded Russ Mould at AJ Bell.
By Heather Rydings, Alliance News senior economics reporter
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