Currys has cut its annual profit expectations for the second time, citing a slowdown in its previously lucrative Scandinavian markets.
Chief executive Alex Baldock said some competitors in northern Europe “have misjudged demand and are having to aggressively discount stock . . . nobody is making any money in the Nordics at the moment”.
Underlying operating profit in its Nordics division fell to just £3mn in the six months to the end of October, from £57mn last year. As a result, Currys now expects full-year adjusted pre-tax profit to be £100mn-£125mn, against a previous range of £125mn-£145mn.
A target of achieving a 3 per cent operating profit margin has also been pushed back from 2024 to 2025, having already been reduced from 4 per cent earlier this year.
Baldock said the discounting did not appear “permanent or structural” and that Sweden, Denmark, Norway and Finland remained “healthy, wealthy markets”. The company considered floating its Nordics business separately last year.
Currys also took a £511mn non-cash impairment charge against the goodwill arising from the 2014 merger of Dixons and Carphone Warehouse that created the current company.
It is the second such charge, having also booked a £225mn hit in 2018. But chief financial officer Bruce Marsh said the majority of the latest charge was down to changes in the accounting variables used.
“The review coincided with the turmoil in the gilt markets in September, when the risk-free rate spiked from 1.9 per cent to 4.4 per cent,” he said. Gilt yields are the main driver of the discount rates used in goodwill calculations.
The charge resulted in a headline loss of £548mn against a profit of £48mn last year, on sales of £2.29bn — down 10 per cent. The underlying loss of £17mn was broadly in line with market expectations. The company makes the majority of its profit in its second half, which includes Black Friday and Christmas.
Baldock said the UK, where it is the market leader, had proved resilient. “Consumers are hard-pressed, they are spending less and there is some downgrading to cheaper products,” he said.
“But they are still spending more on technology than pre-Covid . . . and there is some trading up to more expensive items if they are more energy efficient,” he added, citing strong demand for air fryers and heat-pump tumble driers.
About 17 per cent of sales are now made with a credit component, putting the company ahead of a target set for the end of the next financial year. Baldock said credit scoring was “super-prudent” and there was no sign of stress in the loan book.
Shares in Currys were down more than 6 per cent in early trade. Nick Coulter, analyst at Citi, said the change to full-year guidance largely brought the company into line with existing market expectations and saw “limited scope” for further downgrades.
He also said investors might place more value “on the structural margin gains in the UK relative to the transitory impact of excess inventory in the Nordics”.
The British group also disclosed that it provided a loan facility to its pension scheme during September’s gilt market turmoil, although the facility was ultimately not needed. Higher market interest rates have reduced the accounting deficit on its legacy defined-benefit pension scheme, however.
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