UK phone retailer Dixons Carphone saw revenues plummet roughly 20 percent after revealing a massive drop in profits and “significant” losses in its business.
The company launched a turnaround strategy in December after CEO Alex Baldock warned that profits would drop further to around £210, the second warning announced since he joined Carphone Warehouse in April 2018.
Company's shares also fell around 30 percent, to 91p, then rose to 102p shortly after. Dixons was also forced to reduce its full-year dividend from 11.25p to 6.75p.
What’s Going On With Carphone Warehouse?
In a Thursday press release, Mr Baldock stated that the UK mobile industry was “changing in the way” the company mentioned in December last year “but doing so faster”.
Mr Baldock said that the company was “moving faster to respond” by renegotiating all of the company’s legacy network contracts to benefit profits by £60m, developing new customer offers, and merging its Mobile and Electricals” departments into one business.
I think people buying an good phone for ~ £300, and then going PAYG or a good Sim only deal, must reduce those happy to pay 40 or £50 a month for 2y. I’ve got no sympathy for the carphone warehouse (and others) who were happy to lock people into a £1200 debt for a mobile.— Chris McNeil (@chrisjmcneil) June 20, 2019
He added that for Dixons, it meant “taking more pain in the coming year, when Mobile will make a significant loss.
He said: “Customers are hanging on to their handsets for longer, in some cases three to four years. Some say this is going to change with 5G but we are not going to be dependent on it.”
Customers were also buying handsets and sim cards separately, reducing company profits, in addition to demanding more flexibility whilst buying bundles, according to Mr Baldock, prompting the company to launch its own 36-month, credit-based bundle in April 2020.
Here's another headache for Dixons: 36-month contracts, which create the illusion that phones are "cheaper"— Jonathan Eley (@JonathanEley) June 20, 2019
The networks offer these direct to consumers via their own stores but share relatively few such deals with Carphone Warehouse pic.twitter.com/VSW1JGJBRM
The group also reported a statutory loss of £259m before taxes, compared with profits of £289m in 2018, in addition to £557m in reflecting charges with a £383m write down Carphone Warehouse, it’s UK mobile business. Carphone Warehouse owns 560 shops, down from 662 from last year, with reported losses of £438m and expects to begin turning a profit around 2022. Further stores could close, according to Mr. Baldock, but no plans have been announced to do so.
Carphone Warehouse Woes and Missteps
Richard Hunter, head of markets at Investor Platform Interactive Investor said that Dixon’s “ambitious five-year transformation plan carries many promises and targets”, but it was simply "too early to gauge whether these are achievable”.
Anyone else feel scammed by #Carphonewarehouse? Ordered P30 Lite because of free wireless headphones. a month later, guess what? No headphones and just lies from customer services about callbacks and why i wouldn't be getting them. Escalated to tier 2 customer services...— Bob Baslow (@BaslowBob) June 17, 2019
He added that investors had been “running out of patience with Dixons” and that even “before today’s mauling, the shares had given up 37% over the last year, as compared to a decline of 8% for the wider FTSE250 index.”
Carphone Warehouse was also slapped with a £29.1m fine by the UK Financial Conduct Authority after whistleblower revealed revealed that the group had been training its Geek Squad insurance sellers to mis-sell insurance policies totalling over £444.7m between 1 December 2008 and 30 June 2015, despite customers already owning insurance policies from external sources. The company was also forced to pay a further £2.3m in compensation and damages to customers amid massive contract cancellations.