Currys swings to H1 half profit, says price rises 'inevitable' after Budget

Electricals retailer Currys said on Thursday that it swung back into the black in the first half, with a solid performance in the UK and Ireland helping to offset weakness in the Nordics.

In the half year to 26 October, the company swung to an adjusted pre-tax profit of £9m from a loss of £10m in the same period a year earlier, as revenue ticked up 1% to £3.9bn. Group like-for-like revenue was up 2%.

LFL revenue in the UK & Ireland rose 5% to £2.3bn, but LFL revenue in the Nordics dipped 2% to £1.6bn amid a "difficult" consumer demand environment.

Chief executive Alex Baldock said: "We're very encouraged by our progress. Currys' performance continues to strengthen, with profits and cashflow growing significantly, and the group's balance sheet is strong.

"In the UK&I, we made big improvements to both online and stores channels, customers continued to take more of the solutions and services that are valuable to them and to us, and such growth drivers as B2B and iD Mobile performed well.

"All this showed in growing sales, market share, gross margins and profits. In the Nordics, we gained market share, increased gross margins, tightly controlled costs and grew profits in a still-tough consumer environment."

Currys also said on Thursday that some price rises were "inevitable" following changes to National Insurance contributions and minimum wage announced in October’s Budget.

Looking to next year, the retailer said the Budget is likely to add around £32m of annual cost to its business.

This includes a £9m increase in wages due to national living wage rises and a £12m increase in National Insurance contributions. There will also be a £9m impact from the pass through of these costs from some of its outsource partners and a £2m increase from the inflation-based increase in business rate taxes.

"We will seek to mitigate as much of this as possible through cost saving measures including process improvement, automation, offshoring, outsourcing and other overhead efficiencies," it said. "Some price rises are also inevitable. We will further update on this in due course."

Baldock said: "Looking ahead, we're confident of continuing our progress, and expect to grow profits and cashflow as promised this year. This is despite new and unwelcome headwinds from UK government policy. These will add cost quickly and materially, depress investment and hiring, boost automation and offshoring, and make some price rises inevitable."

At 0920 GMT, the shares were up 12% at 88.48p.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Compared to recent history, Currys had an electric start to the year, with both first-half revenue and profit moving higher. While 2% revenue growth isn’t breakneck speed by any stretch, declines in the Nordics mask 6% growth in the UK and Ireland, as both Online and Store channels charged higher. The positive momentum and continued recovery indicate a potential easing market headwinds and there’s now cautious optimism for the future.

"Market share gains in both major regions are to be applauded. The focus on margins is beginning to bear fruit, with profits jumping higher, albeit from a very low base. Services like device repair, insurance and cloud backup have been a major help on this front as they’re typically higher-margin activities. They also bring a little more revenue visibility to a business model that remains at the mercy of ups and downs in consumer sentiment and one-off purchases of big-ticket items like laptops, TV’s and white goods.

"Then there are potential tailwinds outside of Curry’s control. The integration of Artificial Intelligence into consumer electronics may herald the beginning of an upgrade cycle. So far, this is playing out well, but the first-half numbers only run to late October. The real litmus test will be the next set of results, which will highlight demand over the all-important Christmas period.

"While shoots of growth have emerged in the UK & Ireland, performance in the Nordics region remains a real thorn in the group’s side. Curry’s is doing about as well as it can here in a tough consumer environment here, keeping on top of costs and even edging market share gains without racing to the bottom in a price war. But the Nordic market is in a trough, and the timing of a recovery is out of Curry's control. Until that occurs, markets are unlikely to get too excited."