You may have forgotten all about Christmas by now(credit card bills aside) but for Dixons Carphone (LSE: DC) its very much a live issue. The FTSE 100 electronics retail group has just issued its tradingupdate for the 10 weeks ended 7 January, which includes the crucial seasonalshopping period. So did it enjoy amerry Christmas, and will this point to many happy New Years to come for investors?
Revenues rise
Dixon Carphone has dialled up some post-festive cheer byreportingits fifth consecutive year of Christmas growth, with revenue up4% on a like-for-like basis. This included a 6% surge in the UK and Ireland, and 5% in southern Ireland, with a 1% dip in the Nordics (although margins increased). The weak pound acted as a tailwind, with southern European revenues worth24% more once converted into sterling, and the Nordics up15%. Overall, revenues climbed8% in sterling terms.
So Brexit boostsanother FTSE 100 company, although with the pound appearing to find its floor this cant be relied on in future. Group chief executiveSeb James hailed another good Christmas period of growth with customers still spending on new technology despite significant political uncertainty around the world. He also talked up trulyground-breaking prices acrossbothBlack Friday and theBoxing Day week sales, which it delivered while maintaining margins.
Winds of change
There was further good news with James anticipating a meaningful uplift in year-on-year profitability to 475m-495m of headline profit before tax for the year ending 29 April 2017,in line with market consensus. James also reported a strong year online in all markets, with significant growth, including in white goods. However, he admitted that patchy availability of larger, higher marginphones and tablets posed a challenge.
Large screen TVs, which James sees asa bellwether for consumer sentiment, showed a solid performance in all markets, James added. All of which sounds good. But markets were unimpressed, with the stock down 5.5% in early trading. This reflects continuing anxiety about the UK consumer in the wake of Brexit, as investors question how long the current debt-fuelled boom can last. Perhaps they also see currency tailwindsturning into headwinds in future, impacting southern andNordicrevenues. The stock is now down 25% over the past 12 months.
The right call
Im worried about UK consumer spending even thoughBritish shoppers have been consistently resilient, and people do love their phones and flat screens. However, the uncertainty is likely to dampen investor sentiment, and this mayweigh onthe companys share price for a while longer.
Dixons Carphone warned in December that it was preparing for more uncertaintimes ahead, and itscurrent valuation of 11.47 times earnings reflects that, while offering a tempting entry point. I think that markets are being a little too wary. Earnings per share forecasts lookpromising, with anticipated growth of 7%, 4% and 7% over the next three reporting years.The yield is a forecast 3.3%, which is below the FTSE 100 average of around 3.8% but more secure than many on the index. Covered 2.9 times, it offersscope for progression. Markets have been tough on Dixons Carphone today, but it looks a good call to me.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.