Dixons Carphone shares slide ahead of Christmas update

Dixons Carphone shares have wobbled recently, with investors turning wary about the UK’s biggest listed consumer electronics retailer in the wake of big let-downs elsewhere in the sector.

Dixons Carphone will release its Christmas Trading Statement covering the nine weeks to 2nd January, on Wednesday 21st.

It will come after video game shop chain Game Digital Plc. last week became the UK retailer to suffer the worst one-day share price loss triggered by a Christmas 2014 update.

Game pointed to intense pricing pressure during the all-important winter retail weeks, amid competition to win the custom of demanding, discerning, and e-commerce savvy consumers.

Haunted by Black Friday

‘Black Friday’ and ‘Cyber Monday’ sales, relatively new practices on UK shores, had resulted in macabre media reports portraying over-enthusiastic and even violent customer reactions.

But these masked the fact that the sales were often deleterious to margins.

In Game Digital’s case, the sales contributed to a net 40 basis-point margin fall compared to an 11-week period ending on 10th January last year.

Game said it expected underlying impact to continue into the second half of its financial year.

It did stress that following tweaks to its product mix overall, the gross margin percentage for the full year would be broadly flat.

But the damage was done.

Game shares closed more than 30% lower in reaction to its trading statement, which was essentially a profit warning.

A similar picture emerged from other retailers involved in consumer electronics.

Early in the month the John Lewis Partnership store chain reported that profitability in a five week period ending late in December was stagnant, with margins pressured by the concentration of electrical sales in the Black Friday weekend.

CEO Andy Street warned it was “not in the interests of retailers to continue to grow the pace of Black Friday at the expense of other weeks”.

Last week, Argos-owner Home Retail Group, saw its stock tumble after it said sales at the catalogue store chain were flat between 13th August and 3rd January, despite a 45% leap on ‘Black Friday’ versus comparable days.

“Barnstorming” Black Friday followed by Christmas let-down?

Dixons Carphone has described its own Black Friday sales as “barnstorming”.

If it managed to maintain at least reasonable performance during the rest of its Christmas retail period, that would corroborate the firm’s bullishness at the time of its interim update in September.

At that time, it said it saw further volume growth, particularly from network contracts and that it expected like-for-like sales growth to continue.

Dixons Carphone reported 5% same-store growth in its half year to 1st November.

Nevertheless, the market has opted for caution with the shares down 1.5% as this article is going online.

That brings the fall since the stock market opened for the first time in 2015 to more than 4%, though the shares are still almost 60% higher on a 52-week basis.

With Dixons Carphone having ended 2014 as the FTSE 100’s best-performing stock, investors already had a natural reason to turn cautious, and an unmistakeable downtrend has formed since the last trading day of 2014.

There may also be an argument that a head-and-shoulders pattern is forming on the daily chart, suggesting a further peak, to form its ‘right shoulder’, is possible before a significant plunge below ‘neckline’ support, in keeping with the theory.

I put the probability as just tentative for now, but worth keeping an eye on.

Looking at the 30-minute chart of City Index’s Dixons Carphone Plc. Daily Funded Trade (DFT), there’s currently a hint of bearish divergence.

The image also shows City Index’s Moving Average Convergence Divergence (MACD) Zero Cross System, included in its AT Pro platform.

The trading system is meant to suggest entry and exit points for long trades, or vice versa for shorts.

Here, we can see the DFT rising as the ‘signal’ moving average line looks at risk of crossing lower, and I think the picture for overall direction is ambiguous, though the system hasn’t issued a signal since a ‘buy’ was triggered at 9 AM on Monday.

That was the last time the blue MACD line ‘crossed’ the ‘zero’ marker.

On that occasion, it was rising.