Currys chief executive Alex Baldock painted a picture of starkly different markets as he unveiled the retailer’s interim results
A statutory pre-tax loss of £548m at group level – largely resulting from a non-cash goodwill impairment of £511m – masked a decent performance in the electricals giant’s core UK and Ireland market.
But in the Nordics – traditionally a strong, growing market for Currys – chaotic conditions took a heavy toll, denting sales and almost halving EBITDA.
Baldock, however, struck a bullish tone on prospects in both territories over the longer term, despite the big step back in the Nordics that contributed to Currys slashing full-year earnings guidance.
Resilience in UK and Ireland
In Currys’ domestic market, the retailer achieved a 25% year-on-year uplift in adjusted EBIT to £25m during the six months to October 29.
That figure is higher than the one achieved three years ago, before the onset of the Covid-19 pandemic, and was delivered despite a 19% fall in revenues compared with pre-pandemic levels.
Increased shopper buy-in to services and growing adoption of Currys’ credit offer amid the cost-of-living crisis aided margins.
Other factors including using data to better inform promotions, improved return on marketing investments and ongoing cost savings also offered a boost.
Currys reported that operating costs “fell in absolute terms as savings offset inflationary cost pressures and increased business rates tax”.
“We’re being super-prudent in our planning. We’re not counting on any macro improvement in the next one to two years”
Alex Baldock, Currys
Despite suffering a 10% decline in sales year on year, Baldock maintains that the UK is “showing real momentum”.
While trading conditions remain challenging, he believes Currys can continue to forge its own destiny rather than be at the mercy of wider economic forces.
Questioned about the consumer outlook, Baldock tells Retail Week: “I’ll give you two answers. One is what we’re planning on and one is what might happen.
“We’re being super-prudent in our planning. We’re not counting on any macro improvement in the next one to two years.”
However, he adds: “We might be surprised on the upside. If your readers want to be cheered up with a more optimistic scenario than we’re planning on, there is one.
“You can argue that UK inflationary pressure has now peaked … as long as we avoid an inflationary wage-price spiral. Interest rates may be near their peak. The UK consumer is still sitting on quite a lot of savings.
“Given a measure of stable policy making, which let’s hope we keep, assuming no big new macro shocks, assuming China doesn’t invade Taiwan and the war in Ukraine doesn’t intensify, then a year from now things could look brighter than many expect. But we’re not planning on it and nor do we need it.”
Nordic discounting chaos
Currys’ Nordic business has been a consistent success – there was even talk two years ago that it could become a listed business in its own right.
In Currys’ first half, however, the business was battered as a discounting frenzy engulfed the region, taking the “market profit pool temporarily to near-zero”, Baldock says.
At an adjusted level, Currys’ EBIT in the Nordics was almost completely obliterated, plummeting 95% to £3m, although sales were only down 4%. Currys’ priority was to maintain market share, which in the first half inched down 50bps to 28%.
Earlier this week, house broker Numis had flagged the likelihood of Currys coming under pressure in the region, following tales of woe already disclosed by local rivals.
While Baldock is uncertain how long that disruption will last, he insists it will not go on forever – and says Currys will win through as the situation stabilises.
He asserts that some Nordic rivals – such as Verkkokauppa, NetOnNet and Komplett – misread likely trading patterns and demand in the aftermath of the coronavirus pandemic, a period when demand for technology products rocketed as people were forced to stay at home.
He says: “There is a long tail of competitors in the Nordics. Many were struggling before the pandemic. They got a new lease of life, new equity and debt funding, and that enabled them to go for some aggressive growth strategies.
“They did that just as demand was falling off, so it turned out to be ill-timed and now their discounting is more desperate than aggressive.
“The important point is that these pressures are certainly intense, but we see nothing permanent or structural. Demand will normalise in time. These are healthy, wealthy markets.
“Our judgement was that we needed to maintain our number one slot, which we did, but that has required an exceptional level of margin investment”
Alex Baldock, Currys
“It will be hard for competitors to sustain unprofitable aggression, plus we’re stepping up our own self-help actions on margins and costs, which is why we’re confident.
“Our judgement was that we needed to maintain our number one slot, which we did, but that has required an exceptional level of margin investment.”
Ultimately, helped by the development of aspects of the Currys proposition such as services, along with cost-consciousness, Baldock expects a “robust recovery in Nordics profits”.
At the time of writing, Currys’ shares were down almost 5% since markets opened, having fallen by as much as 8% this morning.
Although Baldock is confident, it is clear the market thinks he has his work cut out.
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