Carphone 3Q Disappoints; Outlook Unchanged
Published on: 17th Jan 2008
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LONDON (Dow Jones) Carphone Warehouse Group, benefiting from solid Christmas sales, Friday posted a 3.1% rise in third quarter gross profit and a 14% jump in revenue and said full year growth expectations remained unchanged.
Despite 3.6% growth in like-for-like sales and an 8% rise in gross profit in December, quarterly results fell short of analyst expectations.
Group revenue for the 13 weeks to Dec. 29 increased to GBP1.23 billion from GBP1.08 billion a year earlier. Analyst consensus had forecast sales of GBP1.28 billion.
Europe's largest independent mobile-phone retailer by sales, which has been diversifying its business over the past two years to become a top five provider of broadband in the U.K., saw mobile-phone connections rise 11% during the quarter to 3.6 million, short of market expectations of 3.765 million.
Revenue in Carphone Warehouse's retail business came in at GBP900 million, compared to industry forecasts of GBP919 million, caused by slower-than-expected subscription growth and a subdued prepay phone market.
"People still want to go to the high street to shop, but they just can't afford to buy things," said Chief Financial Officer Roger Taylor, in an interview with Dow Jones Newswires. He added that the mobile-phone industry was less effected by economic downturns, as U.K. consumers can get new phones through upgrades or new contracts for free.
"The benefit with mobile phone subscriptions is that you can get a brand new handset for free and get a new tariff," he said.
Following strong broadband sales during the period - in which it added 118,000 net customer additions - Chief Executive Charles Dunstone reaffirmed second half targets, saying he expected total net adds for the second half of the financial year to be at the upper end of its 200,000-to-250,000 range.
The company shifted a further 221,000 customers to its own unbundled broadband network during the quarter, improving profitability for that part of the business. More than 61% of its customers are now on Carphone's own network, rather than BT Group infrastructure, that costs the company GBP10 more per customer per month in overheads.
Like-for-like gross profit for the whole company increased 3.1% for the period, although the company didn't disclose financial details.
"We believe we are well positioned as a group, despite the more uncertain consumer environment. This year a significant proportion of profits will come from recurring revenue streams," said Dunstone in a statement.
Despite improving margins, the company's business-to-business division saw revenue fall 9% to GBP77 million from GBP84 million in the period.
The company, which late last year won a contract to exclusively sell Apple's iPhones on behalf of mobile operator Telefonica O2, didn't disclose Christmas sales figures for what was expected to be its biggest-selling phone over Christmas. However, Taylor said that demand for the phone had "undoubtedly helped footfall into stores."
Taylor added that he was comfortable with analyst forecasts of full-year earnings before interest, tax, depreciation and amortization of 57% and earnings per share growth of 65%.
"There's undoubtedly concern about the retail sector as a whole, but we have outperformed that," he said.
Carphone Warehouse saw its share price rise 15% in 2007 until the end of November, outperforming both the European telecoms and retail sectors, but it has fallen 50 pence in the last two weeks amid concern about weakness in the wider retail sector.
However, Collins Stewart said that Carphone Warehouse has outperformed the retail sector by 70% since the end of May last year.
"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," said analyst Mark James, who maintains a buy rating and 370 pence target price.
"The main positive was robust December like-for-like figures. Whilst we would 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," he said.
Carphone Warehouse was one of the biggest fallers on the FTSE-100 share index in early morning trading, down by 4%. At 0942GMT shares had rebounded slightly, trading down 5 pence, or 1.6%, at 300 pence.
-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; firstname.lastname@example.org
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