Dunelm completes hat-trick of good news and investors hang up on Dixons Carphone

Thursday, June 20, 2019 - 09:51

“Despite a lack of clarity from the US Federal Reserve overnight on potential interest rate cuts the market appeared to be reading between the lines after inflation expectations were downgraded with the FTSE 100 enjoying decent gains to trade 0.3% higher at 7,247.88.

“Today the focus switches to the Bank of England with reports suggesting it might buck the global trend and actually move towards an increase in rates,” says AJ Bell Investment Director Russ Mould.

Dunelm

Dunelm caught the market by surprise at the start of the year with a decent trading update. In April it said earnings would beat forecasts as long as there were no changes to current trends in consumer demand. And now it is back with its third bit of good news in 2019 by raising earning guidance yet again, confirming the retail sector still has some bright spots.

“The pillows-to-bedding specialist is clearly doing something right as the tills are ringing across its 171 stores and online.

“It says the weather has been a help, although initially you may think bad rain would prevent people from wanting to hit the shops. However, there is some logic to Dunelm benefiting from the recent unseasonable weather.

“Lower average temperatures will have seen more people stay indoors, in doing so they may have paid more attention to the interior of their home and thought about making small changes.

“Dunelm has broadened its product range to have a complete homewares offering, meaning it is a logical place to visit for interior upgrades.

Dixons Carphone

“Mobile phone habits are changing fast, leaving retailers like Dixons Carphone in a pickle.

“It feels like the trend for switching phones to the latest model every year is truly a thing of the past. The latest phones are perfectly adequate to keep for a much longer time and consumers are finding better value by going for SIM-only deals rather than locking into long-term contracts with a specific network.

“The soaring popularity of WhatsApp has shifted consumer habits away from standard text messaging, thereby removing a key sales point for mobile phone networks trying to lure customers with unlimited texts. Most phones have decent cameras, touch screens and can play music to a reasonable quality, so what’s left for phone sellers to offer in order to make people want to constantly upgrade?

“Dixons Carphone is a real loser from this shifting landscape, as reflected by the warning that its UK mobile business will make a significant loss this year.

“It would suggest the merger with Carphone Warehouse in 2014 was a bad move. That was just at the point when Dixons was getting back on its feet and solving previous problems with inferior customer service. The enhanced mobile offering has now knocked Dixons back down to the ground.”

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The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.