Dixons Carphone Rises on Plan to Revamp Troubled Mobile Unit

Updated on
  • Shares surge most since 2014 amid possible store closures
  • U.K. profit plunges 74% as Britons skip smartphone upgrades

Dixons Carphone Plc surged the most in more than three years as the company’s plans to revamp its struggling mobile-phone unit won over investors.

The U.K. electronics retailer’s shares rose as much as 8.7 percent in London after the company said it planned to reduce the capital intensity of the division, a move that suggests store closures or that the business will be transitioned to a franchise model, according to Whitman Howard analyst Tony Shiret.

Dixons, which operates 674 Carphone Warehouse mobile stores in the U.K., is also considering restructuring payment plans so that more customers pay upfront for their smartphone, rather than over the duration of a contract.

Humphrey Singer

Photographer: Chris Ratcliffe/Bloomberg

“We give away phones and consumers pay for those over two years,” Chief Financial Officer Humphrey Singer said on a call with reporters. “We need to think about whether that model is the most relevant one going forward.”

The struggles in the company’s mobile business, which prompted a major profit warning in August, had shaken investor confidence and halted an unbroken record of profit growth since the company was formed in a 2014 merger. The impacts are still being felt: Dixons Carphone reduced its guidance for full-year pretax profit to between 360 million pounds to 400 million pounds ($480 million to $533 million), cutting the top end of the range by 40 million pounds.

“We recognize that the performance of the mobile division needs addressing, and are taking action to adapt our model in order to cement our place in a changing world,” Chief Executive Officer Seb James said in a statement. The goal, he said, is to “increase the simplicity and profitability of what we do.”

The company’s shares were up 4.5 percent to 175.3 pence at 10:40 a.m., paring this year’s decline to 51 percent.

Last year’s Brexit-induced drop in sterling has driven up the cost of smartphones while technological advances of the new devices have been incremental. The later-than-usual introduction of the newest Apple Inc. iPhone has pushed sales into the second half of the year, although early levels of interest in the device have been encouraging, Singer said.

Earnings before interest and taxes in Dixons Carphone’s U.K. business plunged by 74 percent to 34 million pounds in the first half.

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