UK's Dixons Carphone suffering as customers delay upgrades

By PAN PYLAS Markets Associated Press

Shares in British electrical retailer Dixons Carphone PLC slumped Thursday after the company warned that its profits this year would be lower than expected, partly because consumers are not upgrading their mobile devices as frequently amid the pound's slump since last year's Brexit vote.

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Dixons' share price slid by a third as investors digested the news but recovered somewhat to close down by 20.5 percent at 181 pence, meaning the company now has a market value of barely 2 billion pounds ($2.6 billion). The stock has been under pressure all year amid concerns over Britain's consumer spending slowdown.

Since Britain's June 2016 vote to leave the European Union, the pound has fallen by around 15 percent against its main competitors, including the dollar. As well as raising the costs for importing products into Britain, the pound's fall has stoked inflation in the wider economy. That has eaten into household incomes and prompted British consumers to take a more cautious approach to spending.

The British economy only grew by a quarterly rate of 0.3 percent in the second quarter, slower than any other Group of Seven economy.

In an unscheduled statement, Dixons Carphone said it has seen a "more challenging" environment in the British cellphone market as a result of currency fluctuations that have made handsets more expensive as well as a slower pace in technical innovation.

"As a consequence, we have seen an increased number of people hold on to their phones for longer. And while it is too early to say whether important upcoming handset launches or the natural life cycle of phones will reverse this trend, we now believe it is prudent to plan on the basis that the overall market demand will not correct itself this year," Chief Executive Seb James said.

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Dixons, which owns CurrysPCWorld and Carphone Warehouse in the U.K., also said the scrapping of roaming charges within the 28-country EU would dent profits to the tune of 10-40 million pounds this year. As of June 15, using an EU handset in another EU country incurs no extra fees.

Despite some bright spots including strong sales in the Nordic and Greek operations, the company said it now expected its headline pretax profit for the 2017-18 financial year will be in the range of 360-440 million pounds. That compared with last year's equivalent of 501 million, a figure that most analysts had previously thought it would get fairly near to.

Dixons will be hoping that upcoming launches from Apple and Samsung will help improve its core British business, especially if the pound doesn't recover from its post-Brexit losses soon.

"The forthcoming generation of Samsung Galaxy and iPhone handsets claim to make big steps forward, but recent history hasn't delivered much that's revolutionary," said Nicholas Hyett, an analyst at Hargreaves Lansdown. "Seb James will be hoping Tim Cook (Apple's CEO) has something big up his sleeve."