If a high-tech electrical company came up with an international retail strategy based only on the UK, Nordic countries and Greece, you could be forgiven for thinking the board had been playing too many obscure virtual-reality games. But, for historical reasons, that is the mixture Alex Baldock has inherited as chief executive of Currys.
A post facto justification of that eclectic spread is it gives the group more clout when dealing with the likes of Apple and Samsung, letting Currys place higher orders. But that has been the least of Baldock’s considerations as he has grappled with Brexit, the pandemic and folding the old Dixons and Carphone Warehouse brands into Currys and its foreign counterparts, Elkjop and Kotsovolos.
He has gone for the moral high ground. “Our vision, to help everyone enjoy amazing technology, has a powerful social purpose at its heart,” he says. “We believe in the power of technology to improve lives and help people stay connected, productive, healthy and entertained.”
The biggest effect of that on the cold, hard bottom line is to increase what Baldock calls customer “stickiness”. Some retailers think it is enough to harvest customers’ email addresses but he aims for credit, warranties, repairs, recycling, upgrades and face-to-face advice.
Lockdowns and working from home has introduced the public to the whole range of Currys products, from smartphones to 79in televisions, freezers, cookers and coffeemakers. Four out of five UK households contain a product bought from Currys and ongoing WFH guidance suggests this kit is going to play a big role in our lives for years to come. And, while many analysts say phones have gone ex-growth, Baldock sees them as a gateway. “I don’t think they need to be a low-growth category,” he said. “A smartphone is still the most important bit of tech in most people’s lives.”
The stock market was decidedly unimpressed with yesterday’s half-year results, possibly because it is only six weeks since the group’s interim trading update and investors were spooked by Baldock’s reference to “a softer market in the Christmas run-up”. The shares have fallen from 140p on November 11 to 111p at one stage yesterday. But the bigger picture is the plunge from 500p since December 2015 in the wake of the Dixons-Carphone merger.
At £4.78 billion, half-year revenue was flat year-on-year but up 15 per cent on a like-for-like basis compared with the May-October period in 2019. Pretax profit was unchanged from a year ago at £48 million but, thanks to a lower tax charge, earnings per share rose from 2.8p to 3.7p. Free cash flow was £185 million, down from £499 million this time last year but a big improvement on 2019’s £77 million.
Baldock said: “We have had a strong first half. We grew colleague engagement and customer satisfaction, gained market share and stabilised gross margins in the UK.” A £75 million share buyback is planned for next month, along with a penny-a-share interim dividend. And there is more to come, through £300 million of cost savings.
Retail is tricky to transplant abroad, particularly in food and clothing, but the universal desire for gadgets transcends that. The Nordic operation fits well, accounting for 41 per cent of group revenue as Scandinavians spend their long nights gazing at screens. Greece is an outlier in more ways than one with only 6 per cent of the business. At least it makes money.
Logic points to Currys moving into more foreign territories. Baldock has enough to keep him busy for now, but he admits to dreaming about “spreading our magic dust on a broader range of countries”.
Advice Buy
Why Plenty of potential to be squeezed from the existing businesses, and the prospect of eventual foreign expansion
Hollywood Bowl
Any business with a gross profit margin of 85.6 per cent is basically a glorified funnel that shifts cash from customers to shareholders. In the case of Hollywood Bowl, but for the little matter of rolling balls at wooden skittles, or stroking golf balls into holes, the money could go straight from one set of pockets to the other.
The task of coaxing the cash out of punters’ wallets has proved untaxing and untroubled by too much competition for Hollywood Bowl, which meanders on in its own sweet way without encountering too many hurdles, recently adding Puttstars indoor putting greens to its traditional ten-pin bowling alleys.
For the year ended September 30, the pandemic depressed revenues from £79.5 million to £71.98 million, taking gross profit down from £67.9 million to £61.6 million. At the operating level, profits slipped from £9.9 million to £9.6 million — still a healthy margin of 13.3 per cent. More dramatically, cash went from a net outflow of £8.7 million to a £29.9 million inflow.
The chief executive, Stephen Burns, said: “I am delighted about the excellent performance, record activity for both a single day and an entire month, exceeding our 2019 trading levels on a like-for-like basis and delivering a profit for the year. Notwithstanding the Covid uncertainties, we remain confident in strong, ongoing demand for fun, safe and family-friendly experiences.”
The removal of pandemic curbs led to a burst of bowling activity in August, producing a record £20.1 million in revenue — 50 per cent more than in August 2019. And the company is relatively free of the hospitality industry’s painful dependence on pre-Christmas trade; no single month accounts for more than a tenth of revenue.
Longer term, the early success of Puttstars suggests that Hollywood has the scope and skills to broaden into other types of innocent amusement. The only real risk is that putting and bowling might lose their allure for families.
But while the fun lasts, the shares are as close as can be to fixed-interest stock. Peel Hunt reckons they sell at 15.7 times earnings for the current year, with a prospective return to dividends.
Advice Buy
Why A solid, cash-generative, income-producing share
