Currys: dual cyclone sucks for high street sales vacuum gleaner

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Alex Baldock wants customers of Currys to buy now and pay later. His grumpy shareholders will know about that. Any who bought into his optimistic plans since he became chief executive of the UK electronics retailer in April 2018 have seen some £1.7bn of market value, three-quarters, evaporate.

Currys has a cyclical problem and a secular challenge. The first is a temporary cost of living crisis that discourages discretionary spending on home technology. This took the blame for Baldock’s decision to hold the final dividend to save cash. The stock fell off the shelf, down 10 per cent.

The second shift is permanent. Consumers are increasingly buying vacuum cleaners and the like from online-only stores with rock bottom prices Currys cannot match. A pessimistic view is that the group, which has a large stores estate, is in managed decline.

Full-year group sales fell 6 per cent due to falls in the UK, Ireland and Nordic countries. The electronics retailer managed to squeeze out an adjusted profit before tax of £119mn, better than analysts had expected. This was still down 38 per cent year on year.

Adjusted profits excluded last year’s half-billion goodwill writedown on the 2014 combination of Dixons and Carphone that created Currys. This defensive merger got a fortuitous boost from the collapse of rival Comet. Despite writedowns, goodwill remains the largest chunk of assets (£2.3bn) on the balance sheet, some 39 per cent.

Steeper rates brought the previous impairment. With a goodwill valuation test due every six months, the risk of another one looms if gilt yields arc to new highs.

Baldock promised more ancillary profits from the sale of add-ons such as warranties and credit. So far so good. Credit as a proportion of sales has nearly hit 18 per cent, above Baldock’s goal. Those fees have added some profit ballast.

Does that make shares trading at 7 times forward earnings a buy? Alas, no. Sales of add-ons are a stop-gap measure when store-based sales of underlying electronic goods are declining.