Currys plc (CURY) Earnings Call Transcript & Summary

Good day, and welcome to the Currys Peak Trading Update 2022 Webcast and Conference Call. I will now hand you over to Alex Baldock, CEO. Please go ahead.

Thank you, Emma, and good morning, everybody. And you heard in November that we're on a journey towards a much more valuable business by making the most of a winning business model and as a stronger business now. And today, in that context, we're going to take you through peak trading where we're outperforming the challenging market. And first, Bruce, talk through the numbers.

Thank you, Alex. Good morning all. So let me start by reminding you of our key cash flow drivers that we spoke about at the Capital Markets Day. Our focus is fivefold: steady revenue growth, driven by a wide range of initiatives; stable gross margin; operating cost reduction, which will get us to our target 4% EBIT margin; controlled capital expenditure of 1.5% of sales; and minimal exceptional cash costs. During the first half, we very much operated in line with these principles. We enjoyed strong growth compared to prepandemic levels with group year-on-2-year like-for-like at plus 15%. Our UK&I electricals business was a plus 21% and international, a plus 19%. Our adjusted EBIT was at GBP 91 million, which is flat year-on-year, and that was despite GBP 16 million of rate headwinds. And we achieved that through stabilizing and growing our U.K. gross margin and taking cost out of the business. We achieved strong free cash flow at GBP 185 million, which left us with net cash of GBP 250 million, very healthy position and up from year-end. And finally, our total indebtedness was GBP 1.4 billion. That's a further GBP 240 million down on year-end as we've seen pension deficit reduce and lease liabilities fall. Moving on to peak performance, the 10 weeks to the 8th of January. As you've seen this morning, we're presenting a strong performance that we had in the first half, decelerating over peak, very much caused by a softer market. In the U.K. electricals business, our overall year-on-year sales fell over peak by 7% compared to a market that fell by 10%. But sales were still plus 3% over 2 years, and that's plus 13% year-to-date over 2 years. In the Nordics, sales fell by a smaller amount, minus 5%, off a very strong base. And that strong base is demonstrated by the fact that we achieved 16% positive year-on-2-years. And finally, Greece, strong year-on-year performance, plus 18%. Although obviously, the Greek stores were heavily impacted last year due to closures. So in terms of our outlook, based on peak trading, we've nudged our guidance down to around GBP 155 million PBT targets, and that's down from GBP 160 million that we've previously stated. Our capital expenditure is consistent at around GBP 170 million. We've taken down our net exceptional cash costs from GBP 70 million down to GBP 50 million, partly due to the great job the team are doing on lowering our lease exit costs from store closures but also the settlement of an outstanding dispute that wasn't budgeted. We still aim to finish the year with at least GBP 100 million of net cash, and we will commence a GBP 75 million annual buyback from today. But it's important to bring all of this back to our medium-term targets. And everything that you've heard in relation to both the first half and peak leaves us confidence that we can achieve our medium-term goals in terms of steady growth, stable margin and lower cost to achieve 4% EBIT, controlled capital expenditure and minimal new cash exceptionals. And this will allow us to deliver annual sustainable free cash flow of over GBP 250 million a year by our financial year '24 to grow shareholder returns. Let me hand back to Alex.

Thanks, Bruce. A few minutes from me now on the market at this peak and how we've traded through it. And I'm going to go through this at a fair clip before we get to your questions. But as we flagged in December, the market was softer this peak. But even with that, it's worth mentioning that it is larger than prepandemic in the U.K., 8% larger during peak and year-to-date 17% larger than prepandemic. I guess the question is, how much of this larger market will stick? And we do expect some to, trends like hybrid working are not going away. Gaming's been one of the standout categories this peak and reinforces our belief that a bigger slice of the consumers' entertainment dollars is going to be spent in home. And there are other drivers, too, like faster replacement cycles, the larger installed base, new product innovation from suppliers. So we do expect some of this to stick, but we're not depending on it. And for all that, this Christmas, the market was softer, 10% down in the U.K. year-on-year and more volatile. The one question that this raises from this softer peak is, is Christmas less important now? And you could look at this picture and conclude that in the last 5 years, the average peak week has gone from being 2.1x the sales of a normal week to 1.7. Now maybe this is just a pandemic peculiarity in the last 2 years, availability shortages, some pull forward, and maybe this peak will revert, but maybe not. And maybe this is a sign that technology's a less discretionary item now, a more central year-round category, less peaky, which obviously would be good for this business in more than one way. I mean we don't know yet, and we'll know in the next couple of years. But this is certainly one thing that we intend to keep a close eye on. So that's the market. What have Currys within it? Well, there's a couple of things. I mean first of all, I mean, sales, as you see here, have been up and down during peak and have been softer than expected, especially in the U.K. where we're just growing 3% year-on-2-years in U.K. electricals. But in that softer market, we've gained market share. So fully 100 basis points of market share gained during peak, and that's 60 basis points year-to-date. And that leaves us, as you heard from Bruce, still on track for the steady growth that we've committed to for this full year, I mean, circa 11% year-to-date, year-on-2-years, arguably a little bit better than steady, but that's what we've been able to do. Now some products did sell well. I mean it's what has been a gaming Christmas. I mean consoles have flown out of the shops. VR has broken out of niche and very much into the mainstream. Appliances, large and small, have done really well, and fridge freezers, for one thing, I think we sold 24,000 American-style fridge freezers, about half the total market. Range cookers have been great, bean-to-cup, Dyson hair care and so on. So there have been some stars in the show. And mobiles, many of the mobile products like Google 6, iPhone 13 family, Samsung A have had good Christmas as well as we start the recovery in our mobile business and get that back into growth, but others obviously have struggled in the overall context of a market. I talked about a stronger business at the start, and this is an ever stronger business. And we can show that by our progress in a couple of big strategic priorities, omnichannel notably. And omnichannel wins, we've asserted, and it did again during this peak period. Yes, more customers are shopping online, but we're winning online. As you see on the left-hand side here in the U.K., we're showing decent growth and good share gains online. Equally, stores have reopened strongly, as you see bottom left here. The channel mix has reverted to the circa 50-50 that we expected. And importantly, though, omnichannel is about bringing online and stores together, giving every customer the best of both. And we've made excellent progress here during peak on the big three customer benefits of omnichannel, whether it's, as far as the customer is concerned, never being out of stock in-store, online-in-store sales up over 50%, whether it's getting technology to the customer right now. The U.K. order-and-collect sales, up over 170%. And helping wherever the customer is: on their sofa, face-to-face advice from an expert via 24/7 video shopping service, ShopLive, which continues to make customers happier. They're 4x likely to buy something, and they spend on average 60% more than unassisted online. So good progress in omnichannel and excellent progress in services, notably credit where we -- our adoption level of 13.9% during peak was fully 350 basis points up on peak last year. More customers are choosing our credit. And importantly, for gross margin stability, we're getting better at bringing credit to customers online as well. And both online and stores are now at over 13%. And the gap in adoption levels between online and stores has narrowed from 3.1 to 1.5 percentage points year-on-year, a really good example of leveling up profitability between channels and really important for gross margin stability, as I said. Our confidence that this progress is sustainable is further reinforced by happier colleagues making for happier customers. We've got record levels now of colleague satisfaction. That's new data that sees us get up to world-class levels, on the left-hand side. That's good because it helps produce happier customers, as you see on the right-hand side here, over peak, which can be a pretty challenging time of year for the customer experience, a full 5 points of gain year-on-year, which makes us happy. And behind the scenes of all of this, operationally, our best ever peak as well. IT stability has never been stronger. Customer service levels, whether it's in the contact centers, repairs, returns, have been really strong. And our delivery customer satisfaction has significantly improved. Finally, good progress on sustainability as well with scope 1 and 2 emissions down 44% year-on-year in half 1. So good progress overall towards an ever stronger business. And in summary, what would I say? Well, yes, the market has been disappointing this peak. But it's still bigger than it was prepandemic, and maybe peak matters less now. Currys, yes, our peak sales were softer than we would have liked. But they're still growing steadily, and we're still gaining market share, and we're still showing progress on the big strategic priorities that matter so much for stickier and more valuable customer relationships, omnichannel and services and with happier colleagues and customers and playing our part in society, too. All of which means that we should look forward with confidence to a longer term just as we said at the Capital Markets Day in November: a stronger business that can make most of our market and more and more we are doing so. And with that, we'll pause and move to your questions.

[Operator Instructions] Our first question comes from Andrew Porteous from HSBC.

Alex, Bruce, a couple of questions from me. I guess the first one, I mean, how are you thinking about the sort of the year ahead? I mean there's obviously a lot of moving parts to that. But obviously, a lot of inflation around in sort of nondiscretionary areas at the moment. Are you expecting a tough year ahead from that perspective? And perhaps any color you can give us around how you're thinking about events but, particularly, the product cycle as well. Is there a lot of product we should be excited about in the year ahead that might support demand? And then a second question, more of a technical one. Just, obviously, the pension deficits come down a bit, I think. And I'm just wondering how you're thinking about the payments that you put into that going forward and how we should be thinking about that from a cash perspective.

Thanks, Andrew. Bruce, do you want to take the second question first? And I'll deal with the other one.

Yes, absolutely. Andrew, so from a pension perspective, obviously, we're pleased to see the deficit come down. And the contributions that we're making to the pension scheme and the arrangements we have, we believe, will allow us to manage that deficit down over the course of the next 3 or 4 years. So our intention right now and certainly the agreement we have with our -- the pension scheme is to continue to support to the value of GBP 78 million a year, and that will continue.

Thanks. And to zoom out to your broader question, Andrew, about the year ahead, I mean we're being prudent with our outlook. And I think what we've seen at this peak is a bumpy customer demand. It's good news the GDP numbers that we've seen come out today. But we have seen in our space, technology and for bigger ticket purchases, patchier consumer confidence. That hasn't been helped, obviously, by omicron. But probably more substantially, we've seen more concerns from consumers about -- on the cost of living and of real wages and disposable income that goes with that. Of course, we've also seen some supply disruption, too, although we've kept very well with that supply disruption. All of that's contributed to a market that was 10% down year-on-year. So we may have performed strongly in that softer market, and you've heard that we have. We're still growing, gaining market share, customer satisfaction, traded well and so on, but we're not immune from it. And the uncertainty ahead is one of the reasons we've been -- just a nudge more prudent in our outlook because there is -- there are different scenarios of how this could pan out, and we've been prudent on cost of living, on real wages, on discretionary income, of how much of that is going towards tech or the housing market and consumer confidence and the like. So we're -- as I say, we've got some prudence in our outlook, but that's for the year ahead. I think what we're showing with, for example, the GBP 75 million buyback that we're starting today is confidence in the medium term. You heard from Bruce that we remain absolutely committed to the steady growth, which we're showing now, to the stable gross margins, which we're showing now, to the cost out that we've made a good start on as well as to the normalization of CapEx and exceptionals that gets us to our longer-term goals. Finally, you asked about color in the year ahead. Yes, we're pretty excited actually about what's coming out. And this is one of the benefits, I suppose, of being in the sweet spot of global R&D. You'll remember from the CMD that 7 out of 10 of the world's biggest R&D spenders are our suppliers. We're hearing from them that they are excited about the year ahead. They're investing behind it. And there's plenty to come, whether it's in fold and flip mobile devices, for example, whether it's continued innovation in small appliances, some of the innovations in health and beauty and hair care. We've seen they're pretty exciting. There's new OLED technology coming out in TVs and gaming. Even though we've seen the big console launches this year, things like Call of Duty coming out this year is always a big driver. And virtual reality, the cycle there is looking ever more exciting even before we start thinking about 5G. So there's -- I mean there's plenty of reasons for confidence that this new product development cycle is going to stay healthier as a result of the investment of our suppliers. But all of that said, we're still choosing to be prudent in the outlook.

Our next question now comes from Ben Hunt from Investec.

Just three questions, if that's okay. Firstly, on -- the first question, you've given us good color on the demand side of things. I was wondering if you could just give us bit of color on the supply aspect and to what extent your performance was constrained by supply. Second question is, despite the top line, I mean, a little bit wobbly, you've had a good profitable quarter, it appears. The downgrade is fairly modest. Just wondering where the cost savings came from. And then the final question. Any color you can give us on the progress you've had with expanding out the ranges or the SKUs as it were from what you were talking about at the Capital Markets Day, where we're at with that?

Okay. Let me hand over to Bruce to take the second question first, and then we can -- I'll deal with the other two.

Yes. Thank you, Alex. Ben, so as you say, clearly, the top line has been softer than we hoped. But we've been very careful to make sure that we've been able to mitigate that downside and, therefore, limit the impact both to profits and cash. In terms of how have we done that, well, obviously, it's focused on and continue to focus on stable margins. And you've heard from Alex about credit and services being successful. But specifically in terms of cost, it's about being, and I think, laser-focused. So as soon as it was clear the volumes that were occurring through the business, we took action on marketing spend, specifically PPC, to make sure that we weren't chasing sales in a softer market. We were very careful in terms of both the colleague build and also the number of colleagues' hours that were in our stores, and we did exactly the same within our supply chain. So as much as we possibly can, I mean, clearly, there -- sometimes, there's limits to the flexibility we have. But wherever we did have flexibility, we managed our cost right across the business.

I think that's right. I mean one of the things we flagged at the CMD is that we're building extra flexibility into the model so that we can dial up and dial down the number of hours that colleagues work but also the compensation built with a greater proportion of the variable pay. The only other element I'd add to that -- I mean you asked specifically about cost spend. But of course, the other means of protecting profitability when there are ups and downs in the market on the top line side is through gross margin stability. And I think one of the things that we've done a really good job of during this peak is to continue to level up profitability between channels. That's been a big feature of our gross margin stabilization. You've seen the stats on doing much better at selling credit and other services online. And Bruce referenced the supply chain efficiencies, some of which flow through into the GM line. On the supply question, I mean, of course, if we had a perfect supply situation, we could have sold more. But I'd say a couple of things. Firstly -- well, first of all, supply disruption wasn't limited to product, although there was some disruption of products as I'll come on to, but also availability of people in the warehouses, HGV drivers, trainers, containers, all of it. So there's been some supply constraints across the board. I think the team has done an excellent job of riding out these supply chain challenges, whether that's the improvements in our supply chain or whether it's the fact that we've made the most of our #1 position with suppliers to make sure that we've got preferred access to stock when it's scarce. And the proof of that is in the market share gains that we've seen over peak and the continuing steady growth that we're on for year-to-date and the customer satisfaction improvements that we've seen. So all of those things are evidence to support what we're claiming that we have preferred access to scarce stock. Now did we get everything we wanted? Of course, not. You asked me if I want more PS5s and Xbox Series X and Oculus Quest 2. Yes, I do. We did get more than our fair share of those, but I can be greedy and always want more. Some of the Apple computing product and mobile was in fairly scarce supply. But this is where really good commercial teams and their bacon in making sure that our scale and our importance to suppliers even beyond our scale is reflected in preferred access. And as I say, that's been pleasing in terms of market share gains and the continued growth. On the expanded range, we're going to come back at year-end and give an update on that. But I think what we said is that we are on track for 26,000 SKUs in the U.K. versus 12,000 a couple of years ago. So there's a nice steady growth, arguably better than steady in our SKU count as well. And that's something with further upside as we talked about.

Our next question now comes from Simon Bowler from Numis.

At the risk of starting with a really boring one, U.K. electrical like-for-like last year with plus 8%, and then it's minus 7% this year. I'm just trying to work out how the 2-year was plus 3%, a kind of similar maths told in the other divisions. I just want to check I'm not missing anything in terms of how that's being calculated or what's feeding into it.

Yes. Simon, yes, the difference is travel, the travel business.

Okay. Yes, yes, yes. Of course. Okay, fine. And then I guess if I heard you correctly, you said the market was up 8% on a 2-year-on-year view. And I guess, therefore, kind of either way, that kind of plus 3% would look to be kind of share loss on a 2-year view. Is that the correct rate to read that? And what do you think is kind of going on from that perspective?

Yes, that is the correct way to read that. I mean what we've -- we've obviously gained share year-on-year sort of 100 basis points in the U.K. during peak and 60 basis points up year-to-date. Now year-on-2-years, the explanation is a simple one. It's the channel mix shift in the market. So year-on-2-year, we've gained market share in each channel. We've gained market share in stores. We've gained market shares online. But obviously, during that time, the markets shifted quite violently from just over 1/3 to nearly well over 1/2 of sales online. And so mathematically, it's a bit odd, but it's how it works out that we can gain market share year-on-2-years in each channel but still be down overall. I think the main -- I mean I suppose the main message that we take from the market numbers is irrespective of the channel shift, which we've had to ride and we have, we're back into market share growth. And we're back into obviously with over 1/4 of the U.K. market, a pretty strong leader over the competition.

So -- and then one quick one on cost. I just want to touch on mobile, if it's okay. On the cost side, I think, you mentioned some kind of variable cost element. Was there any kind of reversal of bonus accruals that you made in the first half that's kind of captured within your full year expectations?

Simon, no, there are no assumptions in that to get to the GBP 155 million. Clearly, that will provide some protection on the downside, but that isn't assumed right now within our targets.

Perfect. And then finally, on mobile, and that looks to have been kind of like-for-like growth in the period. And I mean I think mobile revenue is only going to be down kind of 10%, 15% or so year-on-year versus -- I think, originally, when you closed the stores, we would have expected the mobile business to kind of half year-on-year into this year as well. Can you talk a bit around what's going on there? And given that much stronger revenue performance, I presume profitability in that division is also kind of far more robust than we would have been expecting this year. Can you give a sense of kind of how far off your breakeven target you think you would be for that division this year?

Let me take the qualitative side of the answer first before I pass on to Bruce for anything that he might want to add, Simon. So listen, on mobile, we're quietly quite pleased with our progress. I mean the story that we set out at the Capital Markets Day, and that's how it's panning out. We're out from underneath the old restrictive contracts. We've integrated the mobile division into Currys, and you can see that when you walk into a store. We're ever close to being genuinely one business behind the scenes as well as how we present to customers, which obviously has top line and cost advantages. And we've launched -- soft-launch at this stage, the new mobile offer, which has been contributing to getting the mobile category back into growth this peak. Look, we're not getting too carried away at this stage. And as you know, we don't need the mobile category to be a standout success for us to achieve our longer-term ambitions, but we're quietly quite pleased with our early progress.

Yes. And Simon, we don't disclose mobile separately. As you know, it's now a fully integrated part of the business. So we're not going to call that out separately. But we are certainly on track for the mobile business to break even during this financial year. I think we've said previously by the final quarter. And we're confident we will achieve that.

Okay. So -- and then just a quick follow-up on that. I presume a good chunk of that mobile business is kind of postpaid sales, and well, I think one of the big cost out bucket has been kind of removing some of the IT infrastructure to do with that sort of sales base. Can you just talk around how that's been folding, whether there's actually opportunities to keep that business so the cost doesn't come out, but obviously, it still hasn't been profitable or whether you can still take that cost out?

Yes. So we -- you're right. We are continuing to sell postpay at the moment, and there will be opportunities for us to make further savings within the mobile business as we transition to our new platform across both online and retail. At the moment, we're around 50% there. As you know, we've transitioned online, but we're still selling the traditional postpaid within our stores. So as we flip across early part of next year, that will be the point that we're able to close those systems. And that's absolutely part of the [indiscernible] GBP 300 million worth of cost saving target that we spoke about at the Capital Markets Day.

We'll now go to our next question from Richard Chamberlain from RBC.

Yes, three for me please, if that's okay. First of all, I'm just going back to sort of availability. Can you maybe give an idea of in-store availability during the period, i.e., percentage of products available to buy versus those being shown in store or however you measure that and where that's sort of running at versus the historic average? Second, are you planning to change your approach to sourcing and sort of freight cost management in the light of ongoing supply chain bottlenecks? And then third, what sort of rental terms are you getting on the Currys' estate at the moment in terms of store renewals? It sounds like you're getting a sort of better exit position in terms of Carphone exit call or lower costs from the Carphone estate, legacy estate. What about the Currys rental situation?

Great. So yes, let me pick up the last point, Richard. You're absolutely right. The exits of the Carphone Warehouse stores have been very successful, and we're really pleased with the terms that we've been able to negotiate for the sites, both in the U.K. and in Ireland. In terms of rental terms, we continue to have great success at negotiating down our rental terms as our Currys stores come up for renegotiation. I think during the first half, we had sort of high single-digit number of sites that were renegotiated and achieved very, very healthy reductions.

As to the your availability question, you asked about in-store availability. And I think the big change here is that matters less than it did because we've got much more flexibility to sell all online range in every store. And there's been two important things there. There's the so-called online in stores that when you walk into a Currys, you'll see the colleagues with a tablet. And one of the things they can do from that is sell from the full online range. And now we've improved our delivery performance as well. Customers can get it sort of acceptably fast and online-in-store sales were up 57% this peak, which is a big part of being able to mitigate any bumps in availability. But I think the big picture on availability is simply that however difficult we found it and however much hard work it was, the competition found it more so because that's one of the big factors that's allowed us to keep gaining market share as we've done during this peak. There's no fundamental different approach to sourcing to flag, no. I think we, as others are, are dealing with the chipset shortages and the cost inflation and the availability challenges right the way through the supply chain. We've got some practice at it now. We've been dealing with this for the best part over the couple of years. And I'm really pleased with the way that the team's responded. They've done a good job. And again, that's been reflected in the market share gains that we've been able to post.

Our next question now is from Tony Shiret from Panmure Gordon.

A couple of things. First of all, you talked about containing costs by cutting back on PPC. I just wondered if you could give us a bit more color on the sort of marketing strategies you've engaged in, the digital marketing strategies, and whether you're -- notwithstanding the deterioration in sales immediately prior to Christmas, what your views on the ROAS on that spend is. And the second thing is in terms of the OpEx, I sort of remember from your Capital Markets Day, you've outsourced the distribution to [ XPO ] or something like that. And I presume that has made distribution more of a variable type of element rather than having to pay people fixed amount and then not distributing stuff. So I just wondered what sort of benefit you've seen from that sort of move to outsource distribution.

Let me take -- let me start, and Bruce can build on it, Tony. So you're right to observe we've achieved some quite good efficiencies on PPC this year. I mean we're building digital capabilities in the business, as you would expect us to be. But I think the big story there is as we grow the customer base, and we talked about how we've got a greater number, a large and increasing number of accessible customers in the business now. So the organic traffic that comes into us digitally is growing as a proportion of the whole. And so our need to spend so much on PPC is declining, and that's a very healthy trend that we intend to continue with. On the -- I'll let Bruce take a follow-up on the OpEx correction on the outsourcing. But I think one of the benefits from outsourcing that we've already seen maybe isn't flowing through to the numbers yet, but we're seeing already the benefits of having an expert partner in this space. And one of the ways in which we're continuing to improve the delivery options and performance in the business and being able to make ever more competitive delivery promises and then keeping those promises better, and that's evidenced in the double-digit improvements in customer satisfaction on delivery that we've seen, again, year-on-year this peak. We're really pleased with how that partnership in its early days is shaping up to help us continue to do that.

Tony, let me build on those two points. So first of all, in terms of PPC, you talked about the return on capital that we get or the return on investments. I mean, clearly, this is something that we're very hot, too. As Alex said, a lot of our traffic comes through organic. And therefore, we're using PPC primarily on a marginal basis to drive incremental value. But it's a very competitive market. Prices for clicks vary significantly. So therefore, we've got a very robust process that ensures that we will only invest in clicks that we believe are profitable on an end-to-end basis, and that's the way we operate. In terms of supply chain and fixed variable blend, I would say that traditionally, our supply chain has been less variable than other parts of our business, primarily because it involves lots of people, trucks and sheds. But definitely, both through our internal leadership within supply chain and our outsource provider, we've seen more flexibility this year than we would have done in the past.

Just coming back. I just wondered if you might put some numbers on any of that commentary. I mean, for example, what is your percentage of organic traffic now versus a year ago, say? And what sort of pounds millions savings do you think you've made over Christmas by not having to sort of pay the whole distribution cost versus presumably some cost per piece type of arrangement with expert?

Yes. Tony, I think we're -- obviously, this is a trading update, so we don't want to share any specific numbers now. If we can come back to at year-end with any specifics on that, I think that's what we will do.

Our next question now is from Adam Tomlinson from Liberum.

Three from me, please, three questions. The first one, just on price increases. Can you maybe just give a little bit of color on price increases you've put through so far just underlying to try and offset some of the cost pressures, perhaps as well with reference to what you've seen in the market and any thoughts on how that might evolve in the year ahead? That's the first question. Second one is just on loyalty scheme. So I note from the statement, Nordic is doing well. And at the Capital Markets Day in November, I think the U.K. scheme, the Perks scheme there got off to a very strong start. So just if there's any update, particularly on that U.K. side of things. And then the third question, in terms of supply chain pressures, you mentioned staff levels in your -- staffing in your commentary, Alex. So just if there's any particular pressures you're seeing there. I think we're hearing quite a lot across from other retailers about staff shortages, but just what you guys are seeing as well would be helpful if that's okay.

Sure. I mean on the price front, it's probably more what we're looking as -- into 2022 and then what we've done so far. I mean some modest price rises in the market have flowed through to consumers already. But there's obviously some uncertainty ahead on that. What we expect is that there will be some price rises across the market in 2022. I mean both the input and the operating cost inflation makes that almost inevitable. One thing that I will say is that we fully intend to stand by our promise that you can't get it cheaper than a Currys, and we will continue to stand by that. But clearly, we can't guarantee that some of the prices won't rise, and we expect that to happen. Second, you're right that we've had a good peak in the Nordics on the loyalty club. At Perks, we updated on a strong start relatively recently, and we'll give another update on that at the year-end. But we're quite pleased with how that's shaping up. And third, your question, Adam, was on the supply chain pressures on the colleagues. We definitely felt the challenge, I mean, on warehouse colleagues, on drivers, both 7.5 tonne and HGV, as others have. But I think we've dealt with it pretty well is the short answer. And we're not calling out any significant risk to this, both in terms of attracting and retaining colleagues and in terms of protecting their health so that they're available to come to work. And on all of that -- on all of those fronts, we've had a pretty good time of it of late. So on the colleague engagement, for example, we're publishing today the latest update on our colleague engagement, which is, as you know, externally measured. And that's bumped up again to 78, which is above all relevant benchmarks. So we're happy with how that's progressing. So -- and our colleagues want to be here, increasingly, which is good. We've moved all colleagues up, as you've heard last year to at least real living wage levels. And we're also -- 16,000 colleagues will get at least GBP 1,000 worth of free shares in the months ahead. And we continue to invest in their careers and their development as well as in their well-being. And we've -- despite the fact that our colleagues are in the front line, I mean, our colleagues have to go out to warehouses, on the vans and in the stores, and our colleagues have literally been out there all the way through this pandemic. And for us to have achieved lower than the national infection levels on COVID is something that we're pleased with and some of the -- one of the reasons that we've got very low rates of absence for this or any other reason at the moment. So no, we're not calling that out as a pressure.

Our next question now comes from Warwick Okines from BNP Paribas.

I've just got one question actually, and apologies if I missed this. But you mentioned gross margin stability a couple of times. Could you just flesh that out? Are you talking on a 2-year basis because I would have thought that the U.K. electricals margin would have been up quite a lot year-on-year given the online sales mix declined year-on-year? So maybe just some color on that, please.

Yes. Warwick, so the comments we've made on gross margin stability, obviously, some anecdote from a trading perspective. But you might remember in our first half results, we talked in the U.K. about gross margin increasing by 110 basis points. And that's a reflection of a number of components. So absolutely channel mix was one of those. The success we've had at reducing our costs within our supply chain and our service operations has also helped. And that also helps us offset some of the downsides that Alex was describing in terms of short-term supply chain challenges.

The other component there I'd point to, Warwick, and this is more of what we've announced this peak, is to the extent that we get better at selling credit and other services online, we're obviously narrowing the profitability gap between the channels. And we've had a good peak on that count. I mean if you will see in the credit, for example, at 13.9% adoption is fully 350 basis points up year-on-year. We're really pleased with that. It sees us comfortably on track further the 16% target that we've publicly said we're going to do at least as well as that. And in terms of leveling up, the unlovely phrase, so apologies for that, but it's an important concept of leveling up the profitability between the channels. The -- we've narrowed the gap between online and store credit adoption levels from 3.1 percentage points to 1.5 percentage points. So we're substantially on track to eliminate that gap. And we've had a good peak on other services as well. So as Bruce said, it's -- absolutely, it's about getting more lowering and getting more flexibility out of costs such as in the stores and the supply chain as well as absolute efficiencies in supply chain and service operations. It's also about doing a better job of selling credit and other services online, and we're doing all of those things.

Sorry, I think I'm being a bit slow. But Bruce, you said or you repeated that it was up 110 basis points in the first half. What I'm not sure about is whether your comments around gross margin stability over peak either imply that, that it's not up as much as that or whether you consider that to be stable. Sorry.

So obviously, again, trading statement, we're focusing on sales. We're not making any comments specifically on gross margin movement over peak, and we'll update you at year-end.

Okay. So when you talked about stable gross margin, that was more of a sort of medium-term comment rather than a comment on the quarter.

Yes, I wouldn't interpret anything quantitative over peak on that, Warwick. As Bruce says, we'll give a fuller update at the year-end.

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

I just wanted to -- you kind of referenced earlier in your opening remarks that the idea of kind of the tech demand curve, I guess, flattening through the year. We can, I guess, see from the U.K. both this year and last year that, that may well be the case. But it doesn't look to be something that's kind of going on or a dynamic that is apparent in the Nordics. And I was just wondering if you had any thoughts around why that might be different between those two regions.

I guess at the moment, Simon, we're not drawing any firm conclusions on this either way in any of the markets. We're still pointing out some just interesting data that's coming from -- coming out of the U.K., which could mean one or two things. It could mean not very much because simply the last 2 years have been COVID-related outliers, and we'll see 2022 peak return to its normal premium, if you like, over a normal week. But there could be something else going on as well. There could be that over the sort of 5 years, a downward trend in the relative importance of peak versus the other parts of the year. It's not something we've drawn any firm conclusions on either way. It's just something that we've said that we will continue to keep a very close eye on.

Okay. I guess if the former of those proved to be the case and there's just a bit kind of COVID outlier, then given your kind of run rate 2-year growth is plus 4% and across the first half, let's see, you did plus 15%, one could kind of extrapolate and argue that certainly for the first half of the next fiscal year, you'll be facing in some kind of tough comparatives and year-on-year revenue declines. Is that a sensible way to at least kind of potentially think about it? And in that context, are you still comfortable that you'll be able to make kind of margin progress year-on-year if revenues next year were to decline?

So I guess the first point to say is clearly there's still a lot of uncertainty over the remaining 4 months of our financial year. I mean if I tell you the way that we are planning, we've planned based on a continuation on sales rates that we've seen over peak season continuing for the rest of the year. Now obviously, what we may believe or hope could be more optimistic than that. But certainly, the planning that we've done in order to come to the PBT guidance was assuming a continuation of the current trend.

I think in the other -- and just to build on that, Simon, there's a lot obviously under the -- there's a lot of factors in play here and a lot going on under the bonnet, I mean, starting with the fact that how much of the boost in the technology market that we've seen over the past couple of years sticks. And as Bruce says, we're being very cautious in how we plan for that, but we would expect some of it, too. So even this peak was 8% larger year-on-2-years, as you've seen, and that sort of 17% larger year-to-date and double digits in the Nordics as well. So you can pay the money and takes your choice on that. We expect some of it to stick, but we're not counting on it. Then the next stage is whatever happens to that market, we'll still have confidence that we're going to continue growing market share. And we are confident. And we've shown this peak and this year that we've got what it takes to continue to grow market share even in the face of some headwinds on market channel mix. We've negotiated those, and we're out the other side and continuing to grow market share overall. And there's lots of reasons to believe that we're going to continue to do that because the things that are giving us our competitive advantage are the things that we're going to continue to double down on. We're not going to become any less insistent with our suppliers in the nicest possible way that we get preferred access to stock. We're not going to let up on building on the benefits of our omnichannel specialist model that we've got that nobody else has got. And we will continue to gain market share or grow and gain market share online. We'll continue to make the most of having the stores and the two together. Meanwhile, we'll continue to build the credit and other services that get these customers coming back. You'll recall that credit, for example, those customers are more than 50% likelier to return the following year. So the momentum that we're building and the proportion of our customers who take our credit is important for the longer term ahead. So when we say that we're looking ahead with confidence, we can substantiate that, we believe.

Okay. And then just a quick kind of clarify Bruce's comments earlier. When you say you're kind of planning for peak levels with the demand you've seen recently persisting across the balance of the year, would that be you're assuming the kind of 1-year like-for-like rate persist across the balance of the year or 2-year like-for-like rate persist? I think the comparative base moved quite a bit from here.

It's very -- as you know, Simon, it's very, very difficult to judge and monitor the business performance year-on-year because of the various stages when stores were closed and stores were opened. So from a planning perspective, we have been focusing year-on-2-years very quickly. Unfortunately, we'll be focusing year-on-3-years in order to maintain that stable base and have a consistent outlook. Does that make sense?

Yes. No, there can be some fun modeling bits, of course, next year, I agree. But okay, cool. No, that's really useful.

We have time now for one more question from Nick Coulter from Citi.

Two, if I may. Two, if I may, please. So firstly, could you just share a little more on where you saw softer demand, please, i.e., the categories where you have good availability but where the sell-through wasn't quite as you expected? Then on the credit side, which does sound encouraging, could you step through what you are doing differently this peak and how you kind of drove that conversion? Was that price? Was that selling mechanic? What drove that conversion across store and online?

Yes, a couple of things there. So the short answer on softer categories is TVs, which is obviously a big one for us and where the market was weak and weaker than we expected over peak. And I mean what was going on there, we'll say more about at the year-end. But what seems to be the case is a very strong start to the financial year fueled by the euro's -- fell off sharply in November and December. And that required us to trade through it with -- intelligently because there were some other competitors who appeared to be stuck with unwanted stock and were selling at a loss, and we're not going to do that. So we traded our way through it profitably. And the -- I guess the proof of that is that we are still gaining market share year-on-year in TVs. We've got -- we've traded through stock. We're not sitting on any excess or aged stock. And so we protected the top line and profitability in a difficult category this peak. On the credit side, we're just continuing to do what we said we would do. We've done some innovation in the product. The pay in three was a particularly successful innovation. But the main thing is leveling up between stores and between channels. So this is one of the areas that we're very focused on. And we share best practice and new and quite interesting ways between stores to allow the stores to inspire each other with how they can successfully bring our credit offer to more customers alongside other things. And -- but probably most importantly, we're leveling up between channels. And that's been improving the customer experience online so that it's easier for them to adopt credit. And as you've seen, we've substantially narrowed the adoption gap between the channels there. Important to say in the same breath that we're doing this with great responsibility because we want to stay a mile away from any reputational risk apart from anything else that can come with irresponsible lending, and we're not going to have any part of that. So we've been super careful on who we lend to and how much. The affordability and the creditworthiness checks remain stringent. We're embed with some very conservative, which we like, partners like BNPP. And we've continued to train our colleagues very carefully on compliance and the spirit and the letter of compliance, training and work very closely with the FCA to make sure that we're doing all of this in the right way. So that's an important sort of qualifier, if you like, to the message. But the big picture on credit, which we like, as you know, because it brings incremental customers to us. The customers are happier. They can afford better technology, and they can afford to trade up to better technology. And they adopt other services more reliably. And they come back. And their likelihood to return, our measure of loyalty, is -- we've touched on already. So it's been really important progress that we intend to build on. I think with that...

Just to come back on the...

Go on, Nick.

On that first question, so a chunk was pull-forward impact. But what about the rest, the big ticket area? Did that hold up with respect to demand? Or is it just a pull-forward in TVs that was the challenge?

TVs was the biggest challenge, yes. I mean in year-on-2-years, computing had an excellent year. I mean, obviously, we had a gangbusters year in computing last year. So we weren't expecting to quite match that. But we -- but year-on-year computing -- year-on-2-years computing showed excellent growth. Gaming within that was a particular star but also appliances. I mean so the large appliances like range cookers and fridge freezers were very strong as were small domestic appliances as well, so small kitchen and domestic appliances. So forgive me, Nick. We are out of time, and we have something else to get to. Many thanks all. Many thanks to you and many thanks to everybody. And all I would say is the sale is still on. There are some outstanding deals on currys.co.uk or the store near you, and I would encourage you to go and take advantage of that while it's still on. So many thanks all, and have a great day.

Thank you. This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.