Dixons Carphone: online sales double but can it last?

Shifting online has been the pivotal move to keep the lights on at Dixons Carphone. It’s hard to argue with the success of the strategy when the company’s online electrical sales more than double.

They hit £4.7bn, up 103% on last year thanks to the rush to kit out our new working from home setups with tech over lockdown.

It hasn’t completely avoided the effect of a shutdown to its physical sites though. Overall group revenue growth of 2% shows just how big of a lag that retail footprint can be when it isn’t allowed to perform.

Dixons did manage to top pre-tax profit expectations though. The £156m figure reported this morning beat the group’s previous expectations of £151m and analyst expectations of £145.6m.

But even better news for income-seekers is its tentative return to the dividend world. 

It hasn’t been easy for UK firms to turn the income taps back on but now feels as good a time as any, after higher than expected profits and bolstered cash reserves of £169m.

The dividend proposed will be a full-year payment of 3p, a far cry from the 10p+ levels seen in recent years but enough to let shareholders know income is back.

Dividend consistency is key though, and that will need a bit more stability elsewhere in the business too. 

Its Dixons Travel stores look like they’re going to be a drag on performance for a while yet if we can’t get out to the travel hubs and pick up a neck pillow and headphones on the way to the Continent.

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Is a consumer cliff-edge coming?

And there is a real threat of a cliff-edge in consumer spending if the tech splurge turns out to be a one-time thing. 

Most people working from home will have got themselves sorted by now and it might be that any new big items they need, like laptops, are fulfilled internally by their firms' budgets, not out of their own pockets. That could mean a fall in discretionary spending in Dixons’s ranges.

In any case, the pandemic has shown just how valuable, and capital light, the online channel can be. There may be peaks and troughs in spending habits as we start to find a new level of online spending. But it would be a brave investor to call the end of the need for a strong online shopping portal.

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ShopLive a sign of things to come?

Trimming down the physical store portfolio and moving its Carphone Warehouse operations into Curry PC World stores is a good sign the company understands this.

And launching ShopLive, an online video shopping service designed to give face-to-face advice and assistance for online and in-store customers, is the firm’s nod to a hybrid model while it works out the best balance for life after lockdown.

Now, the goal should be to keep costs low, seriously consider the viability of its physical sites, and prepare for an increasingly online shopping experience, even as shoppers start to hit the high street.

Investors are wary of this transition it seems, with the share price coming off the boil since the end of April. The company has taken a while to draw the market in and wasn’t front and centre of investors’ minds even as electrical cousin Best Buy took off in the US.

Part of that might be a longer history of disappointing trajectories for investors - an aspect some notable value fund managers like Fidelity Special Values boss Alex Wright have bought into.

The firm has the chance to make itself even more relevant and completely strip out the underperforming parts of the business. If it doesn’t take the chance, it could be business as usual for the beleaguered share price.

Past performance is not a reliable indicator of future returns. 

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