Currys saw like-for-like revenue fall 6% for the 10 weeks ended 7th January. That reflected a 5% decline in the UK & Ireland division and a 7% decline in the International division.
Profits in the UK & Ireland division were better than forecast as a result of both cost saving measures and gross margin increases, which was driven by growth in all Service areas - record credit adoption being the standout.
Higher profits in the UK & Ireland made up for below forecast profits in the group's International division, as the Nordics region continued to see pressure on its gross margin. The Nordics market also saw sales decline in all categories except small appliances.
Currys remain confident of delivering underlying profit before tax between £100-125m for the full year and expects to end the year with less than £100m in net debt.
The shares rose 3.6% following the announcement.
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Our view
Currys trading update was a tale of two divisions. A forecast beating performance in the UK & Ireland helped to offset some of the struggles felt in the International division.
In the UK & Ireland division, sales of domestic appliances and mobile were strong, but consumer electronics and computing were lagging. This reflects the fact that consumers are struggling to justify quite so much discretionary spending, while still ringfencing spending on essentials. After all, these days mobiles are deemed nearly as important to everyday life as white goods like washing machines and fridges.
In the Nordic regions, which is the second largest segment, margins are still under pressure. In 2022, low demand left competitors with excess stock, leading rival stores to slash their prices. Currys kept its prices the same, resulting in a painful display and piles of excess stock which it's been working hard to try and shift. Management see this as a short-term problem but as the saga draws on, we're becoming less optimistic.
Back in July, Currys downgraded its operating margin guidance for 2023/24 from 4% to 3%. Because of recent developments, that target was later pushed back by a year. After these two recent downgrades, it's nice to see management now reiterate its confidence in achieving this target.
One of the group's main attractions is its omnichannel model. You can enter a store and have access to the entire online shopping range or speak to an in-store expert in the comfort of your own house. These services help Currys attract and retain a customer once they've made contact, and likely due to the more personal touch, stores are now outperforming online.
The group's services channels have also been a beacon of light lately. There's been growth across the board, including record levels of credit adoption which saw active credit customers grow 4.3% to 1.9m customers. Services typically have higher margins than goods sales, so can help relieve some of the pressure when revenues fall.
However, with the last set of figures showing operating margins running thin, at 0.6%, there's very little wiggle room. We're left wondering how much of next years expected improvement is down to cost cutting and whether there's underlying growth to come as well. Concerns that look to be reflected in a valuation that's below the long term average.
Currys key facts
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