Do you remember when all those Dixons shops were renamed to Something dot something or other, and most people spoke of them as “The shop that used to be Dixons”?
Well, we could soon be talking about “The shop that used to be Carphone Warehouse”, as Dixons Retail (LSE: DXNS) and Carphone Warehouse (LSE: CPW) are to merge.
The new company, to be known as Dixons Carphone, will control Dixons’ 500 Currys and PC World shops in the UK together with the 2,000 outlets across Europe currently under the Carphone Warehouse brand. Annual sales should be close to £12bn.
The firm will be worth around £3.8bn and looks set to enter the FTSE 100. With the existing companies having almost identical valuations, shareholders of the two will split the ownership 50/50.
Back from the brink
Dixons’ recent recovery has been almost legendary — from the depths of the the high street slump, the company has stormed back and there’s an 83% rise in earnings per share (EPS) expected for the year just ended in April 2014, followed by strong earnings growth for the next two years. Dixons says its underlying pre-tax profit should be at the higher end of expectations.
The share price has done well too, with a 40% gain this year to 48p — and it has more than trebled since the dark summer of 2012.
For its part, Carphone Warehouse saw earnings stagnate in 2013, but results to March 2014 are expected to show EPS up by a half. Today’s 318p share price has provided a 35% gain over 12 months.
Does the merger make sense? I’d cautiously say it does.
The days of computers and phones being distinct products really have come to an end, and a company that can’t offer the whole range of devices is going to look less and less attractive to customers. The integration of a full product line is one of the things that makes Apple such a success, for example, though how much of a seamless integration Dixons Carphone manages to achieve remains to be seen.
Shopping is shifting
How the combined operation handles the shift to online shopping is another unknown, and there are just too many similar shops in the bricks and mortar world for them all to survive — the Currys and Carphone Warehouse outlets in my nearest city centre also have to compete with department stores like John Lewis, in addition to internet retailers.
Still, conquering multi-channel selling played a big part in Dixons’ comeback, and that experience will surely help the new firm.