Comment: Dixons Carphone - A horse designed by a camel?

Having navigated two sizeable trading humps over the Christmas period, Dixons Carphone is looking like a retail thoroughbred.

The well-known phrase “A camel is a horse designed by committee” is usually attributed to the famous car designer Sir Alec Issigonis back in the 1950’s and history does not yet relate which management committee came up with the bright idea of what to call the merger of Dixons and Carphone Warehouse last year…

But Dixons Carphone’s ebullient and erudite chief executive Seb James caused some amusement on today’s analyst’s conference call (to discuss the Christmas trading update for the nine weeks ended January 3rd), by saying that the changed shape of trading was more like a “Bactrian” camel than a dromedary, ie it had two humps rather than one!

The first “hump” was obviously the infamous “Black Friday” surge at the end of November, which was then followed by a quiet couple of weeks of trading, but fears that the traditional “Boxing Day” Sales surge would be reduced were allayed by another big “hump” in trading, although by implication that too is likely to be followed by a quiet few weeks, as John Lewis has been reporting.

Of course, it is possible for a retailer to prove anything by picking the best sequence of weeks of trading to report and the key thing is how it all averages out and what the bottom-line turns out, via the achieved gross margin and operating cost control.

Interestingly enough, if John Lewis had reported sales for the 5 weeks to January 3rd (ie the same 5 weeks as the BRC and ONS Retail Sales reporting periods for December, excluding the “Black Friday” week in November) their like-for-like sales growth would have been only 2% like-for-like (rather than the +4.8% like-for-like declared for the five weeks to December 27th).

Ahead of today’s announcement, investors were clearly a bit nervous about the reports from both Argos and John Lewis of very weak tablet PC sales in recent weeks, but the fact that the overall Christmas period was better than feared for Dixons Carphone must say something about the spread and the momentum of the newly merged business.

In fact, Dixons Carphone delivered a nice beat to City expectations of +5% LFL in the UK over the “Peak” trading period, with UK like-for-like sales up by 8% on the back of stable gross margins.

And on the back of that trading success, management felt confident enough to forecast full-year underlying pre-tax profits (to the end of April) of between £355m and £375m, a few per cent ahead of the market consensus. And that is despite the FX translation hit being suffered on the important business in Norway and the uncertainty about whether Easter, the next big “hump” in UK trading, will be affected by the imminent General Election.

So how did Dixons Carphone deliver that trading success at Christmas? Well, as one door closes another one opens. Tablet PC sales were indeed very weak, as the market has quickly got saturated, with average prices falling fast, awaiting new technological innovation. But consumers have been happy to spend their money on large-screen TV’s and new white goods, as they at last start to think about upgrading and refurbishing their houses.

Of course, consumers have plenty of options when it comes to buying new TV’s and white goods, but the fact that Dixons Carphone’s customer satisfaction scores have improved further must say something about the better service now being offered, both in the stores and online. And the fact that Seb James made a point of highlighting the “particularly rapid growth in Online white goods sales” was an obvious dig at his great rival, AO.com.

Add in the benefit to “old Carphone” from the absence of Phones4U this Christmas and the launch of the iPhone6 (boosted by the success of the “shop in shops” in Currys PC World) and it becomes easy to see why management are feeling pleased about life and the stellar performance of the Dixons Carphone share price since the merger shows that investors are also pleased with the group’s prospects too. 

But although Dixons Carphone has a strong pedigree, even the best bred flat horses can end up jumping fences for a living if they fail to fulfil expectations and Seb James knows that he will have to keep whipping the group into shape to deliver on the merger synergies in the next financial year.

• Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos Retail Think-Tank.