We might be able to cope with walking down the street with no clothes on but doing without the latest mobile phone would leave us feeling naked. So, while it may be understandable likes of Debenhams (DEB) and House of Fraser are on the rack, it’s a worry that Dixons Carphone (DC.) is still struggling.
Markets were not too bothered that pre-tax profit for the year to 28 April were down 24% to £382 million because we had advance warning last month. In fact, the full-year results were greeted with a rise of 2.4% in the share price. The worry is that Dixons stuck to its guidance that there will be a further fall in profits in the current financial year to around £300 million.
Sales in the UK are shrinking. Not only are we sticking with our mobiles longer, we are cutting back on purchases of white goods at the Dixons half of the business. The squeeze in wages may be ending as pay rises edge ahead of inflation but the squeeze in consumer spending has quite some way to run.
To add to the problems, wages of Dixons employees and other costs are rising and some customers’ bank details were stolen in the second cyberattack in three years, which looks a bit careless.
Group revenue is actually rising, but only because Dixons is expanding its smaller operations in Scandinavia and Greece. It may be some time before foreign earnings help to restore growth in profits.
The final dividend, like the interim, was maintained as a show of confidence. I do worry, though, that unless there is some improvement soon the board may have to bite the bullet and cut back on the payout to shareholders. The new chief executive would have no qualms in blaming this on his predecessor.
The shares were 300p a year ago and have been as low as 150p. They now stand at around 200p. I have seriously considered topping up my modest holding, which is currently showing a loss, but I get the nagging feeling this could be throwing good money after bad. I’ll hang on to what I’ve got and collect the dividend. Apart from that, enough is enough.
Interest Rates: The New Normal
For a decision to do nothing yet again, the Bank of England’s vote to keep interest rates at 0.5% has quite an impact. At long last another member of the nine-strong committee has joined the two who have been urging a quarter-point rise, and it’s a significant mover at that: Andy Haldane, the Bank’s own chief economist. That projected August increase is looking much more likely.
In addition, the Bank has effectively brought forward its targeted date to start tentatively unwinding its quantitative easing programme, though don’t hold your breath as it probably won’t happen for another three years.
The important point is that with the US raising interest rates quite aggressively and the European Central Bank proposing to end its own quantitative easing programme at the end of this year, the Western world really is getting back to normal.
Perhaps more intriguing is that the Bank is sticking to its view that the UK economy has rebounded in the second quarter and will show 0.4% growth in GDP after the 0.1% disappointment in Q1. Certainly there can be no excuse about the weather holding us back this time but it is worth bearing in mind that the Office for National Statistics, which compiles the GDP figure, thought that the impact of the beast from the east snowstorm in March was overrated.
The truth will probably be somewhere between the two views, enough to maintain muted optimism but not enough to set the stock market racing. I’m glad that most of my holdings are in defensive shares.
