15th May 2023 14:36
(Alliance News) - Currys PLC raised its annual adjusted profit guidance on Monday, helping to lift the stock 5% in London; however analysts cautioned that the Nordics region is likely to remain a "deadweight" on the company's performance moving forward.
The London-based electronics and electrical goods retailer said adjusted pretax profit for the financial year that ended April 29 is expected to be between GBP110 million and GBP120 million. This is up from previous guidance of GBP104 million, though down from GBP186 million in financial 2022.
Shares in Currys were up 5.2% at 58.85 pence on Monday afternoon in London. The stock is down 35% over the past 12-months, however.
Russ Mould, investment director at AJ Bell, said Monday's profit upgrade raises the question of just how well Currys might be doing if it wasn't for the "previously reliable" Nordics business "hitting the skids".
"Like an athlete who has found a new level of performance only to find a stone in their shoe, the electronics retailer continues to churn out an impressive performance in the UK and Ireland, belying a difficult backdrop, while continuing to struggle in Scandinavia," Mould said.
Currys reported on Monday that group like-for-like sales were down 7% in the recent year, with sales in UK & Ireland and the International division both down by that percentage. In the International division, sales were up 12% in Greece but down 10% in the Nordics.
As a result, Currys said it expects adjusted earnings before interest and tax in the UK & Ireland to be up by 40% in the recent year, but adjusted Ebit to be "materially lower" in the International division, driven by the Nordics.
Back in March, Currys bemoaned a tough consumer environment in the Nordics, as it appointed a new chief executive officer for the region amid the ongoing performance challenges.
"Our Nordics performance is not where we want or expect it to be. The intensity of competition may be unrelenting, but we're no stranger to tough markets and aggressive competitors wanting to knock us off our number 1 position as the go-to destination for all things tech," Chief Executive Alex Baldock said at the time.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, explained that, last year, low demand in the Nordics left competitors of Currys with excess stock, leading those rivals to slash their prices. However, Chiekrie said, Currys decided to keep its prices the same, resulting in a "painful display" and "piles of excess stock".
"The group's stock levels fell 10% year-on-year, but until inventories and demand normalise, the Nordics are likely to remain a deadweight on the group's performance," Chiekrie said, adding that the trading environment still remains "extremely challenging" for the company's second-largest segment.
Liberum analysts Adam Tomlinson and Wayne Brown were more optimistic: "The Nordics macro backdrop continues to be challenging, and it is too early to be speaking of a recovery. That said, there are signs that the competitive environment has eased somewhat, which is bringing some margin opportunities. Recent reporting from Nordics public peers, Komplett and Verkkokauppa, signalled this. Both showed improving gross margin trends, lower inventory levels, and spoke of a calmer competitive environment and better pricing dynamics."
Consequently, Liberum upgraded its financial 2023 adjusted pretax profit expectations for Currys by 9% to GBP110 million, at the bottom end of Currys' own expectations.
Currys is a corporate broking client of Liberum.
By Heather Rydings, Alliance News senior economics reporter
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