Shares of Dixons Carphone Plc plunged on Thursday after it forecast a drop in its earnings this year, which was unexpected. Shares fell by up to 32%, as more expensive phones and a lack of new, hot products deterred Brits from upgrading handsets.
Profit before taxes will be between £360 million (approximately $450 million) and £440 million for the year through April 2018, said the largest retailer of electronics in the UK in a Thursday statement that was not scheduled.
This warning stops what until now was an unblemished run of growth in profit and applies pressure on CEO Seb James, who did not give any hint of looming troubles, when Dixons posted results during June.
The decline in sterling versus the euro that dates back to the vote for Brexit means that mobile handsets are more expensive, and fewer phone technology advances have given the consumer less reason to make upgrades, said the CEO on Thursday.
Speaking during a conference call held with analysts, the CEO said that customers have kept their handsets up to four or five months longer.
The weakness in the market will not be over the long term and the company is optimistic that Apple’s introduction of the iPhone 8 is going to be a catalyst for more growth, said the CEO.
Apple usually has its release of a new generation of it iPhone in September prior to the start of the holiday shopping season.
Dixons Carphone said that as the market for mobile handsets slows, it made a conscious decision of investing in proposition and margin to maintain its market share, a measure that weighs on it profitability.
Shares in early trading in London were down by 19%, reducing the market value of the retailer by approximately £590 million to just over £2.04 billion.
Andrew Harrison, its deputy CEO, who has worked in the mobile business unit of the company since 1995, sold over 1 million shares in July but holds another 4.29 million.
The price drop in shares in part is a reflection of increased skepticism by investors over the earnings quality for Dixons said one London analyst. The company has faced questions over if it provided enough clarity on issues that the mobile handset market was facing when it posted its quarterly results during June.
The hit to its profit from the slowdown in the market will be made worse by a one-off negative charge of between million and £40 million related to the changes in roaming legislation across the European Union, said the company.