Mixed Carphone news


Carphone connected fewer new customers than expected in the 13 weeks to December 29 as it struggled to deliver a third successive Yule of bumper prepay handset sales.

The number of handsets sold grew 11 per cent to 3.6 million compared with the same period last year, against expectations of a 15 per cent increase. And in the company’s trading statement it admitted the prepay market “was a little more subdued than last year”.

“These figures come on the back of enormous prepay sales for two years,” said chief executive Charles Dunstone, adding other high street retailers would have killed for similar results.

Carphone finance director Roger Taylor chipped in: “In a quite challenging retail environment, I think we did pretty well.”

Customers appeared inclined to shop around more for the best mobile deal, he added.
Total retail revenues grew 13 per cent to £650 million but, stripping out the 86 new stores, like-for-like sales were up just 1 per cent during the quarter.

The good news was some analysts had feared like-for-like sales could actually go into reverse, and in December alone like-for-likes rose a decent 3.6 per cent. Carphone added stores had outperformed competitors and grow market share.

Reassuringly for the City, the company retained its financial forecasts for the year, which effectively equates to market expectations of £224 million profits for the year to March 2008.

“Carphone Warehouse’s trading statement combined a confirmation of punchy full year outlook with third quarter numbers that were largely at the bottom end of expectations,” wrote Mark James of stockbroker Collins Stewart in a note to investors.

“The main positive was robust December like-for-like figures. While we’d expect some weakness on the back of this update, we would point to the 50p share price fall so far this year as evidence that much of this is, in our view, already in the price. Our price target remains £3.70.”

Share price down

Carphone shares, which joined the FTSE 100 index of leading shares last year, closed down 2.75p at 302p on the day of the figures, putting them 68p shy of Collins Stewart’s target.

Dan Gardiner, analyst at rival broker Landsbanki, said the performance was worse than had been expected, although he welcomed the in-line outlook.

“While the bulls in the stock continue to argue Carphone Warehouse’s core distribution business, which generates most of the group’s profits, should provide some insulation against any impending economic slowdown, this argument ignores more fundamental concerns in our view,” he said.

Dunstone was also tight-lipped about sales of the iPhone, except to say it drove lots of footfall. Reports suggested Apple had fallen just short of targets for UK sales of 200,000 by Christmas.

Carphone was the only independent selling the Apple gadget but it has signed a fiercely restrictive non-disclosure agreement with the Californian giant.

Carphone’s shares have been volatile of late with rumours circulating that US retailer Best Buy, which owns a three per cent stake, is poised to make a bid. There’s even been chatter in the market that Vodafone could be considering a takeover bid.

Move into broadband

Dunstone, who shows no signs of wanting to sell his holding in the company, says Carphone’s move into broadband and fixed-line telephone services means the Christmas performance of his 2,400 stores is becoming less important to the overall figures.

He continued to expand the business in broadband, adding 118,000 new customers over the quarter as the company’s AOL business offered free Dell laptops or Sony PlayStations.

Carphone also cheered analysts with strong progress in its drive to migrate its TalkTalk broadband base off BT’s lines and onto its own network – Dunstone reckons he loses £5 a month for every customer that remains on BT’s lines.

Carphone has 2.6 million broadband customers and moved 221,000 of those off BT and onto its own network, and now has 61 per cent of its total customer base on its own lines.

Dunstone also gave positive forecasts for overall customer growth in broadband. Carphone had originally forecast new customer numbers of 200,000 to 250,000 in the second half of the year. It now expects the number to be at the top of that range.

Fears rivals would lure away TalkTalk customers coming to the end of their 18-month deals seem to have been overplayed for now, as Carphone said it saw no increase in churn. But the competition isn’t getting any easier in broadband, and TalkTalk’s critical task this year is to prove it can keep hold of its customers.