Currys At Big Discount, Is It A Bargain Yet?

With inflation keeping people from buying consumer electronics, Curry's has had a challenging endeavour this year, trading as high as 52% in March but flipped to negative recently. Is it a bargain, or could there be further pain ahead?

FY As Expected But Not Paying Last Dividend

Curry's recently released its full-year results saying that trading was within expectations. The problem is that the expectations were already negative. In its trading update in May, the company provided some hope for investors by slightly upgrading its guidance for profitability. It seems that the cost-of-living crisis was not felt just in the UK but elsewhere, as the revenue from the International division fell as much as the UK&I division on a like-for-like basis of 7%. The company desisted from paying dividends as it looks to shore up capital ahead of a difficult trading environment.

So far in the new year, trading has been off to a similar start, and the company cites a lack of spending power among customers. Consumer electronics are one of the items that often get left out of shoppers' bags when squeezed by prices, a trend affecting all of retail. As for the issue of the Nordics, they are also experiencing a cost-of-living crisis. While inflation in Norway is somewhat lower than in the UK, Sweden is by far the most populous and still has a higher inflation rate than Britain. Unsurprisingly, consumer discretionary spending on electronics has been depressed in the broader Nordics segment.

Profitability Poses Big Thread, Along with Debt

The other reason the Nordics were particularly bad - although revenue was down fractionally, profitability was down 82% - was increased competition from other retailers, which had to move inventory that would have gone to Russia. That situation could be resolved as the market adjusts to the new supply dynamics. And inflation is starting to moderate, which could mean consumers might return with more robust wallets.

The problem for Curry's is that those benefits will likely take some time to manifest, as inflation in key markets is expected to remain high well into 2025. That's assuming the UK avoids falling into a recession later this year, which would further reduce consumer demand. While the company could see a recovery in the medium-to-long term, its relatively high debt puts it in a complicated position to keep paying out attractive dividends while interest rates remain high. The expectation is that rates will remain elevated as long as inflation does, which means the company could be under pressure for several quarters if not years.

Currys PLC In Falling Wedge Pattern

The price of Currys could be in a bearish or bullish falling wedge, plunging to lower lows if it fails to get past the peak of 55p or rising towards 60p, and perhaps above 70p, while above 55p. Failing to extend above 52p will increase the chances of additional breakdowns, opening the door to round levels as low as 30p. Conversely, ascending above the wedge upper trendline will raise the probability of advancing above 82p and exiting bear.

Source: SpreadX / Currys PLC

Key Takeaways

Curry's has been facing challenges due to inflation and a lack of spending power among customers, leading to negative trading YTD. Despite the company's full-year results being within expectations, both the UK&I and International divisions experienced a decline in revenue, indicating a widespread cost-of-living crisis affecting consumer electronics spending. The profitability of the Nordics segment was severely impacted by increased competition and supply dynamics; however, the market may adjust over time. Inflation is expected to remain high into 2025, potentially further reducing consumer demand. Additionally, Curry's relatively high debt complicates paying attractive dividends while interest rates remain high.