Electricals group Dixons posted full-year profits at the top end of expectations and unveiled a new strategic phase. The results were met favourably by commentators
Dixons says that it believes that its combined UK & Ireland/Northern Europe operating margin of 2.7% can grow to 3% to 4%. This looks achievable to us. Certainly, these numbers provide significant support for the UK profit recovery story and Nordic management has done a good job in its first year of managing Central Europe. The focus now shifts to its underperforming businesses (Southern Europe and PIXmania), which are major contributors to our forecast of £100m profit improvement over the next three years. Putting together a credible plan for recovery is therefore very important for the share price and the initial focus on costs looks credible. – Philip Dorgan, Panmure Gordon
The stock has risen by over 20% since the beginning of the week so there is likely to be some profit taking particularly as there appears to be nothing new in the statement. There should be a marked improvement in the performance of Pixmania and the South European businesses but we believe the UK, which has benefited from the digital switchover in the south, will see the LFLs slow in FY13E. We have to be convinced that any improvement in trading will convert into higher profitability and at current levels the stock looks fairly valued at c.10x our forecast FY13E earnings. – Freddie George, Seymour Pierce
“In the UK, Dixons deserves credit for recognising early on that online has created fundamental changes in the way consumers buy electricals and for reacting to this through their Renewal and Transformation programme. Initiatives such as improving availability across channels, making physical stores more experiential and engaging and right-sizing the store portfolio have all helped to create a business that is both aligned with the way consumers shop and economically sound.
“While the UK and, indeed, Dixons’ Northern European operations are making good progress there has to be more concern over its exposure to Southern Europe. While the businesses in Greece and Italy are both well managed – especially on the cost front – it is beyond Dixons’ ability to manage the external demand environment.” – Neil Saunders, Conlumino
“The continued strength of Nordics, whose operating dynamics serve as aspirational best practice for the other operating divisions, and the improved performance from UK & Ireland clearly show the success of the Renewal & Transformation plan and the growing traction of the Knowhow service proposition. Weakness in Southern Europe is unsurprising and that at PIXmania disappointing, but we continue to view Dixons as a long-term winner in electricals.” – David Jeary, Investec
“The positive comments on current trading in the UK tally with the improvement in like-for-likes reported by Argos earlier this week. Whilst the outlook for Argos may be less bearish than before, we do have a strong preference for Dixons over Home Retail Group for three reasons: 1) Dixons is reporting +8% UK like-for-likes vs. flat for Argos; 2) Dixons has greater scope to deliver cost savings; 3) we think that the competitive environment for Dixons is more favourable than it has been for some time. For us, this contrasts with the situation at Argos where we expect the roll-out of click & collect to thousands of Sainsbury and Tesco convenience stores to put pressure on Argos’ multi-channel leadership.” - Richard Cathcart, Espirito Santo