Currys PLC (LON:CURY) has reported a dip of 4% in revenues over the last four months, with issues in the UK and in particular the Nordics remaining unresolved.
The Nordics region has been a particular thorn in the side for Currys and since it accounts for around 40% of overall revenues, the impact on the group is material. Revenues fell by 8% in the period, still suffering from the aftershock of a market that has been overstocked, leading to extremely heavy discounting from competitors who are selling at basement (and virtually unprofitable) prices, leaving Currys on the sidelines. With this in mind, the group has taken the red pen to costs in an attempt to mitigate the situation, with cuts made to the likes of headcount and store lease and operating costs.
There seems to be rather more promise in the UK & Ireland operation, although the challenges remain live with a decline of 2% in revenues. The last two months have seen an improving revenue trend as compared to May and June, with the further adoption of its credit and protection services above expectations. Sales of domestic appliances and mobiles have been strong, but offset by weakness in other categories and in computing in particular. Again, against this backdrop, Currys has been forced to concentrate on gross margin improvements and cost cuts in an effort to drive profits and erode some of its net debt.
The pounding that the shares took after the full-year numbers in July has left the price down by 40% over the last six months, and by 25% over the last year, which compares to a dip of 2% for the wider FTSE250. Over the last two years, the shares have plunged by 64% which on the face of it leaves the company’s valuation cheap by recent standards. However, the valuation is depressed mainly due to the twin concerns of UK competition and underperformance in the Nordics. The market consensus of the shares as a hold reflects a lack of confidence for investors to commit for the time being and in the absence of what was an attractive dividend yield following the previous cut, there seems little to go for unless the trading situation improves dramatically.
Market snapshot
US markets slipped in choppy trade, as the recession and interest rate conundrum was further complicated by data that prompted a return of some inflationary concerns.
Stronger than expected services data posed a further question of whether the Federal Reserve has reached the end of its hiking cycle, although no rise is expected later this month. It nonetheless takes some of the wind from the sails of investors who had increasingly been pricing in rate cuts as early as next year, with no immediate signals from the economic data that this is currently on the cards. While the news has not detracted from a strong showing from the main US indices this year, further releases pointing to higher rates for longer could lead to questions of overvaluation. In the meantime, the Dow Jones remains ahead by 4% in the year to date, while the S&P500 and Nasdaq have added 16% and 32% respectively.
UK markets took the hint from Stateside weakness, as well as a troubled Asian session in which China reported a further decline in exports, albeit lower than expected. In addition, the oil price has now risen by over 5% this year, latterly boosted by the news that Russia and Saudi Arabia look likely to extend voluntary production cuts through to the end of the year, as opposed to the previous expected end in October. Positive though this may be for the oil majors (BP (LON:BP) and Shell (LON:RDSa) shares have risen by 10% and 6% respectively over the last two weeks), the higher level adds to pressure at a time when inflation was seemingly coming under control, with price rises already being reported at the pumps.
The latest dips for the main indices leave the FTSE250 down by 2.4% in the year to date. Meanwhile, the premier index opened sluggishly again, and was additionally hampered by the likes of Admiral, DS Smith and Prudential (LON:PRU) being marked ex-dividend. Elsewhere, the miners returned to the firing line of risk-off sellers, while general weakness among financial stocks against a tightening monetary backdrop added to losses, leading to a decline of 0.6% for the FTSE100 so far this year.