Dixons Carphone warns of "weakening" spending this year as profits tumble

Dixons has warned that it expects a “weakening” in spending later this year as it posted a surge in online sales during lockdown, but a fall in annual profits.

The retailer reported profits in the 53 weeks to May 2 fell to £166 million from £339 million the year before, as the impact of store closures during lockdown and troubles in its mobile division hit earnings.

Overall UK and Ireland sales rose 1% to £4.54 billion, but group sales were down 3% at £10.17 billion. The results are ahead of City estimates, but the company has not declared a final dividend.

Dixons saw an eye-watering 166% upsurge in online sales in the UK and Ireland in the first few weeks of lockdown as shoppers hunted for laptops, bread makers and gaming equipment to make working and living at home constantly more bearable. Hair clippers were also popular, with hairdressers forced to shut. Overall annual sales rose 22%.

Its Carphone Warehouse mobile division continues to prove a headache. The company said: “trading was worse than expected after the closure of all our small standalone shops due to the enforced closure of all our other UK stores and low sales transfer to the online business”.

Dixons Carphone group chief executive Alex Baldock said: “Since the year end, all our electricals businesses have continued to grow sales. Where our stores have reopened we've performed well, while continuing to see strong online sales growth. That said, we expect a weakening of consumer spending later this year and are being cautious in our planning.”

Baldock said it would put more emphasis on its "Shop Live" service, where staff offer customers advice via a video call. "It means a colleague in Guildford with spare time can serve a customer in Glasgow," Baldock said.

Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said: "Online sales are lower margin, which compounds an existing problem because operating margins are already a little thin. The other thing to consider is spending patterns in the coming months. Customers may have splurged on their at-home set ups, but as the economic outlook gets gloomier by the day, it’s fair to assume that discretionary spending is going to be pinched. That will hurt Dixons’ top line, and one way to help mitigate that is through discounting prices – but that would compound the existing margin problem.

"The results mark the end of a turbulent financial year for the business, which was fined £500,000 in January for a massive data breach that compromised the details of 14 million customers."

Just two months later - and just before lockdown - the company announced it would close all of its standalone Carphone Warehouse stores in the UK. The move cost 2,900 people their jobs at 531 sites across the country.