Currys plc (CURY) Earnings Call Transcript & Summary

Ladies and gentlemen, I would like to welcome you all to the Dixons Carphone Peak 2019 to 2020 Trading Statement. My name is Brica, and I'll be coordinating your call today. [Operator Instructions] And now I would like to hand over to the host of today's call, Alex Baldock, the CEO, to begin. So please go ahead, Alex.

Thanks, Brica. Good morning, everyone. And I'll give you a quick intro, and then Jonny and I can take any questions. Summaries, we've had a good peak in what's been a pretty challenging market. We're on track both to perform as we promised this year, but also with the long-term transformation to make this a much more valuable business. Some peak highlights of the U.K. electrical, like-for-like is up 2%, the worst in stores and their TV. We like the supersizing trends, particularly over 65 inch. That's been strong for us. Headphones, Apple AirPods to the floor has been up by nearly 50%. Gaming in the market has dipped this year in advance of the new console's launch. Our gaming was up 10% with Nintendo Switch, the star products. And Battlegrounds stores, the start means of enabling that. Smart Tech continues to be strong, up 7%, both wearables and Google Nest and Ring are all strong. And health and beauty was particularly strong, up 21%. And Dyson continues to redefine how much people are prepared to pay for a hairdryer, and the Airwraps are flying off the shelves. So some star performers in a robust performance by U.K. electrical, where we've also seen, obviously, strong market share gains in the market that went backwards by just over 3% and that market share gains in store as well as online. And customer satisfaction gains as well, which we keep a close eye on. So both customer satisfaction at different stages of the customer's journey as well as NPS, overall, have shown strong double-digit year-on-year increases. So that's all good. It hasn't come for free. So we've, in fact, continued to invest in the customer proposition. And while that has cost us some gross margin, it's been an important support for the continuing top line growth, continuing share gains and customer satisfaction improvements and still allows us to keep our promise to profit, I should say promises for the full year. And we can talk more about what we've done to invest in that customer proposition. International, up 3%, with domestic appliances and kitchens, especially strong. We've seen market share gains here, too, in every territory. Norway and Finland were the stars and always at steady margin. Mobile -- U.K. Mobile was down 9% as expected, and that's -- if those are the peak highlights, then longer-term transformation is also on track, and that's contributed towards this robust peak performance. And we've shown good progress on all the big priorities of our longer-term transformation with online -- as I said, we're gaining share there as well as in stores. And online was up 7% as we continue to make the customer journey easier online. In stores, our tens of millions of pounds of investment in more exciting, enticing stores, the 80-odd experience zones that we've landed already has been performing very well, and we've -- so much so that we're rolling those out to the rest of the, call it, 3-in-1 estate. And we're starting to join up online in stores in a meaningful multichannel experience for our customers. For example, the online range in stores was up 140% over peak, which is a promising sign. Not just the multichannel, though, credit was strong. And as you know, credit is good for customers. They're 17 points happier in NPS terms, and good for us. And we've seen credit sales grow by 40% year-on-year over peak. But not just credit services, so we've seen record adoption of set-up and protection services over peak as well as some strong progress in the Nordics on services. And U.K. mobile where, again, as you know, we're currently constrained by legacy costs and contractual constraints, which we come out from by the end of FY '21. And we're getting ready for when we're out from underneath those constraints with network renegotiations, offer improvements and integration of legacy Dixons and Carphone, and that remains on track to at least break even in that part of the business by FY [ '22 ]. Finally, on people, we're starting to attract some quite interesting talent to this business now. And in recent months, we've announced the likes of Mark Allsop from Merlin; and Andy Gamble, who's James Dyson's CIO at Dyson, both come over; Paula Coughlan from McDonald's. And this week, Lindsay Haselhurst, fresh from building one of the world's most admired Supply chains at Screwfix, coming over as Chief Supply Chain Officer. So talent is beginning to set up and take notice of what we're doing here and willing to be a part of it, which is encouraging. Also, on people, obviously, we're continuing our drive to make all colleagues, shareholders to encourage every one of our colleagues to think and act like an owner. We think this is a good practice for a progressive company, and we're seeing positive signs of engagement as a result, so that's also promising. So -- and all of this, the customer is noticing as well. And I've mentioned that not only are we seeing market share gains, but we're also seeing strong double-digit improvements in customer satisfaction, which is another good lead indicator for future performance. So in summary, we had a good peak. We're on track for both to deliver our promises this year, but also on the bedrocks of our longer-term transformation. But I would remind us all, we're nowhere near the full potential of this business yet. We are, though, confident we're on the right path to realizing it. With that, I'll pause, and then, Brica, Jonny and I will take any questions.

[Operator Instructions] The first question today comes from Simon Bowler from Numis.

Just a couple questions from myself. Firstly, I was just wondering if you could kind of elaborate or perhaps you could kind of quantify kind of the gross margin shape perhaps on a kind of divisional basis and including mobile, if that will be possible. And then secondly, with regard to kind of reiteration from the new mobile offer coming next summer, is that -- can you expand to around -- on what we should be expecting that to look like? Is their expectation that business returns positive like-for-like? Or should we wait until kind of full year for further details on that?

Well, I'll take the second part of your question, Simon, and Jonny can take the first. I think the future mobile offer is responding to a trend that we see in the market today. It's not speculative. And we've seen that the largest -- the fastest-growing segment of the mobile market at the moment is the over 24-month so-called credit-based bundle because the customers who do want to buy mobile handsets and connectivity together increasingly want more flexibility and transparency within the traditional 24-month postpaid bundle has offered. And so that is the fastest-growing segment, and that's the one that we see ourselves as particularly well placed to prosper in. After all, we have the relationships with handset suppliers. We have -- we're building the credit as a group-wide priority. We have the services, and then we have our own connectivity ID with over 1 million customers as well as a range of networks in those. So we think that, that bundle is one that we're well equipped to put together. We are putting it together, and we expect it -- we said before, we expect to make a meaningful contribution in next financial year, FY '21, and we remain on track with that promise.

And then on the margin question, Simon. We don't break out the details at the quarters. At the interims, you'll remember that we described investing in the customer offer, and that was why gross margin was lower year-on-year in both U.K. -- well, in all 3 divisions. And we said that, that was going to continue into the second half, and that's very much what's happening. We're deliberately not changing profit expectations for this year because profit delivery over peak was in line with what we expected. The color is that, in U.K. electricals, market share gain was -- did accelerate in a weak market, and that came with a little bit extra of margin investments. In international, the margin was firmer, and that was helped by the increasing visits to shops from the launch of the customer club. And in mobile, it was very much in line with what we expected. But overall, as a group, profit was very much in line with what we [ see ] today.

Okay. Great. And sorry, just to kind of clarify. In terms of kind of mobile being in line with what you expected, can you just remind us, is that kind of a similar shape that we saw across the first half?

Yes. Very similar indeed, and on track for the profit expectations, which we've set out, which is up to GBP 90 million negative, yes.

The next question comes from Warwick Okines from Exane.

Two questions, please. Firstly, could you just talk a little bit about the shape of peak trading, how that may be changed year-on-year with a little bit more shift towards Black Friday versus Boxing Day sales or perhaps the reverse? And secondly, could you talk about the impacts of the extended range on your online sales? I know you've got a target of getting to 40,000 SKUs over sort of a 3-year period? Where were you over this peak? And how much did that benefit your online sales?

Yes. As for the shape, Warwick, we have seen the continuation of the trend of a greater concentration around the Black Friday period, that's continued. What we have been able to do is a couple of things. Well, first of all, spread that over a longer period, which makes it easier for us operationally. So when we talk about Black Friday now, we're no longer talking about a day. We're talking about a fortnight's peak trading period. But of course, I mean Black Friday is here to stay, right, and we could complain about it or we can make sure that we prosper in it. And the -- and we've opt in for the latter course. And obviously, with our scale, being the #1, we're well placed to make sure that we can negotiate good deals for our customers with supplies, and we've been able to do that. They both have continued to gain market share over this period, but do so while keeping to our profit guidance. So yes, the shape has continued to stock forward, if you like, into Black Friday, but no more than we expected or planned for. That's the first part. As to your second question, on the extended range, well, they're relatively early stages of adding extended range. We are -- we do remain on track to the 3,000 extra SKUs that we committed to at this financial year, but that's obviously a relatively small part of the 40,000 that we committed to over 3. But we're on track to do that, but that's made a relatively small contribution so far to the 7% online growth that we posted. A bigger contribution to that has been a number of other things. So being on the money on price obviously helps online, and our refusal to be beaten on price has built customer trust in us on this important measure. Availability was significantly better as well as right first-time delivery, those are obviously important online. We've also made some improvements to the website itself, I mean nothing terribly groundbreaking, yet. We've deployed some basic AI to improve our search and recommendations. We've made our check-out process a lot easier with a single-stage check-out. We've got the site speed by up to 30%. And we've launched a strong app with a 0.25 million downloads so far. So nothing terribly groundbreaking, but that, to me, is quite encouraging because there's a lot more in the tank that we can and will do online. And so we're just getting started really on that, and it's encouraging that we're showing market share gains already for the work that we have done.

We now have Tushar Jain from Goldman Sachs.

Yes. A couple of questions from me. Just looking at the international online growth, just focusing on the online trend. It slowed down materially over the peak trading. Is there anything specific to look into? And if you can give us a comment on how is your inventory position looking post-peak trading, because I think you had built up some extra inventory going into Black Friday. Those are the 2 questions from my side.

Yes, Tushar. I'll answer the first and Jonny can take the second part. Yes, the international, obviously, posted encouraging sales overall at plus 3% like-for-like. But online was at 5%, which is below what we've seen over the first half. And we did have some technical problems in Norway over the Black Friday period. In particular, we had an outage on the website, which, ideally, we wouldn't have had, but we had it, and we've dealt with it. So we've dealt with the recourses of it, but that did slow down the online growth rate below what we would have expected. Jonny?

And then on the inventory, inventory is in pretty good shape. The sales were close to what we expected them to be, and so nothing to worry about on inventory. I mean specifically, we did build some buffer inventory for a potential hard Brexit back in October, and that's also through. So no issues there.

[Operator Instructions] We now have Richard Chamberlain from RBC.

A couple of [ questions ] please from me. Did you see much impact from the U.K. general election during the period, either an impact on footfall in the weak holiday or possibly sort of post-election bounce in big ticket items? And has the general election result made you more confident on big ticket for the year ahead? And that's the first one, I guess 2 parts. And then the second one, just on mobile. I mean I guess the current run rate is pretty depressed. Are you expecting another leg down from here while we go through that contract renegotiation period over the next 12 or 18 months or so?

Okay. Richard, I'll take the first part. And the short answer is we haven't seen any great impact from the general election one way or another. And as you rightly point out, there was a bit of a dislocation or there has been in recent months a bit of a dislocation between the sort of economic fundamentals being relatively healthy and consumer confidence being more depressed than one would expect. There's usually quite a good correlation between GDP growth, employment, housing market, real wage growth, on the one hand, and consumer confidence, which is a big driver of big ticket on the other, as you know. And so we -- I think it's quite too soon to speculate as to whether that -- the general election will help resolve that dislocation in a favorable way. I mean we have -- we certainly didn't see it over the peak period overall as you saw with the market down by just over 3% in the U.K. electrical. And I mean I wouldn't have a crystal ball on this, what I would say though is that we're not counting on any improvement. And so all of our plans assume right away through the 5 years of the plan a continuing decline in the U.K. electrical market. And we've just given ourselves the task of being successful in the face of that headwind. If we get -- if it's better than that, fantastic, but we're not counting on it. And I think what we've demonstrated over this peak period is that the underlying strength of this business: Number one, wherever we play, added to the impact of the transformation that's beginning to bite in areas like online and credit and services heading in the right direction. I think it shows our ability to grow sales, grow share, grow customer satisfaction and stick to our profit forecast even in a difficult market.

And then on your question on online, we're very much in line.

Actually -- sorry, Jonny, it's more mobile, yes most mobile markets.

Sorry. You're right. Indeed, sorry. Yes. I was going to answer mobile, but...

You can do online, if you like.

Yes. So on mobile, no, we're very much in line with what we expected for this year. So we are losing a bit of share as the credit for the -- as the more than 36-month offers are gaining share, we don't have those. Our offer were on -- our new offer, we're on track to introduce next year. And the integration of the businesses into one business are also on track, which is what's giving us confidence that, by FY '22, we'll be at worst breakeven and that this year is the worst year of losses. So we don't have anything more to add to that guidance at this stage. The plans are developing as we expected.

We now have a follow-up question Simon Bowler from Numis.

Just a couple of follow-ups on the -- more on the kind of balance sheet side of things, if that's okay, to the extent you're kind of -- perhaps you're in a position to comment at this stage versus more of a trading update. But firstly, the trends you're seeing in mobile, does that give you any sense of whether it's likely to be a revaluation of [ borders ] or downwards on the mobile debtor? And is there any sense of what kind of quantum of reduction in the overall debt that we should be looking for year-on-year? And then to some extent, linked into that, I know you're guiding kind of net debt to be reduced year-on-year, but is there something you kind of give some sort of sense of the quantity?

Well, I'll take those. Mobile debtor, no new news. At the interims, we took into account everything we were aware of, and nothing has changed since then. So we can't say that nothing will change from this point going forward, but as it stands, we're not expecting any more revaluation. And on the net debt, we've said it will be a bit below what it was last year. We're not being more specific than that at this stage. Nothing has changed since the interims on net debt.

We have no further questions submitted, so I'll hand back over to you.

Thanks, Brica. And thanks, everybody, and have a good day.

Ladies and gentlemen, this does conclude today's call. Thank you again for joining. You may now disconnect your lines.