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Dixons Carphone Warns of ‘Significant’ Losses in Mobile Business

Dixons Carphone Warns of ‘Significant’ Losses in Mobile Business

(Bloomberg) --

Dixons Carphone Plc plunged to a record low after warning of “significant” losses in its mobile business as U.K. consumers upgrade their phones less often and shift to cheaper contracts.

The company, which sells phones and other electronic gadgets, said profits will be squeezed as consumers switch to shorter, more flexible deals. The deepening problems in the mobile arm compound the woes at Dixons after a data breach last year.

The shares fell as much as 28%, the most since 2017. As of late morning they pared the loss to 13%.

The company had warned in December that the U.K. mobile landscape was shifting. As upgrades to handsets become more incremental, the retailer is losing out on the former bonanza from shoppers rushing out to replace them every six months or so. It’s moving to cut costs by integrating the mobile and electronics businesses.

Dixons Carphone Warns of ‘Significant’ Losses in Mobile Business

“The market in mobile is changing and these changes are accelerating so we are accelerating plans to merge our two businesses,” Chief Executive Officer Alex Baldock said on a call.

The problems at Dixons add to the woes on the U.K.’s shopping streets, where retailers are reeling from the shift to online shopping and the political turmoil over Brexit. Electronics chain Maplin is one of several chains that’s collapsed.

Dixons said it is renegotiating contracts with wireless operators, some of which have required it to meet volume targets even if the company loses money on new customers. That will boost profit by 60 million pounds ($76 million) this year, Baldock said, and lay the groundwork for improved results in the following two years.

Online Shift

If Dixons can harness e-commerce more effectively, it could see profits rebound, said Julie Palmer, a partner at restructuring specialist Begbies Traynor.

“First it will have to tackle the falling demand for new mobile-phone contracts, as consumers continue to delay the purchase of major white goods until there is greater confidence in the economy,” she said.

While full-year earnings before interest and taxes met analysts’ average estimate, Dixons predicted adjusted pretax profit this year to be around 210 million pounds, roughly 30% below market expectations. The retailer recorded costs of 20 million pounds for last year’s data leak.

“Analysts were not expecting such a steep cut to profit guidance, although the share-price decline over the past year or so indicates that the market more generally was expecting further bad news,” Liberum analyst Adam Tomlinson said by phone.

--With assistance from John Lauerman and Luca Casiraghi.

To contact the reporters on this story: Eric Pfanner in London at epfanner1@bloomberg.net;Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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