It’s a sad reflection on the retail sector that an uninspiring update for the important Christmas period from Dixons Carphone (DC.) should produce a feeling of relief.
Well, at least there were no new nasties, with the performance in the 10 weeks to January 5 in line with the board’s expectations. It is, however, little consolation to be told that Dixons continues to hold or improve its market share in all territories where it operates when those markets are struggling or even shrinking.
Mobile phones in the UK and Ireland remain the big problem, with total sales down 12% and like-for-likes off 7%. Electricals did manage an anaemic 2% improvement, but it was left to the overseas markets to rescue group revenue, which edged up 1% overall.
Dixons has been under the cosh after cutting its dividend, falling from 235p last May to below 120p earlier this month but the update helped a little. Equally important is that the group has attracted the attentions of activist investor Elliott Advisers, said to be considering taking a sizeable position after making a detailed analysis of its finances.
I hold shares in Dixons, having refused to believe quite how bad things had got, but I can’t honestly encourage other investors to buy in. The shares could well be coming off the bottom and any buying by Elliott will obviously help, especially if they manage to shake up the operations, but shareholders are taking a lot on trust at this stage.
Buy only if you are prepared to take a risk. It will be a long road back.
A Buy in the January Sales?
It’s a familiar pattern at stationery retailer WH Smith (SMWH): travel outlets up, the High Street down. What was unusual about the 20 weeks to January 19 was that the High Street was down only 1% in total and 2% like-for-like, quite the best for some years, while gross margins improved. There was good growth in sales of Christmas cards, wrapping paper and diaries. While you might expect those items to sell well at that time of year, it hasn’t happened for some time.
So the High Street was not too much of a drag on the travel section, which once again raced ahead by 16% in total. Even stripping out the US acquisition InMotion the improvement was 8%. I’m still a little nervous about InMotion because so many UK retailers have failed across the Atlantic but it does open up great expansion prospects.
Smith shares have slipped from 2,300p at the start of last year to 1,700p at Christmas, and one or two downward lurches have been quite frightening. However, there has been a bit of a pick-up to 1,900p, which in my view as a shareholder is nowhere near far enough. I rate the shares a buy.
A Christmas Stock Tip(ple)
Pubs group Marston’s (MARS) managed anaemic like-for-like growth in the 16 weeks to January 19 but it had a bumper Christmas, especially in its managed and franchised taverns. This is more likely to have been a blip rather than a lasting improvement, given the cautious outlook expressed by the board.
However, Marston’s is cutting back on new openings and targeting spending more carefully so it can trim debt and maintain the dividend, which means shareholders can rest a little easier in their beds. The shares have moved aimlessly between 90p and 115p over the past 12 months. That is likely to continue until there is a clearer picture.
