May 9, 2012 / 7:10 AM / 7 years ago

UPDATE 2-Carphone Warehouse eyes international tie-ups

* Q4 like-for-like revenue down 5.5 pct

* Says will meet forecasts for 2011-12

* Seeking deals similar to its venture with Best Buy

By Drazen Jorgic

LONDON, May 9 (Reuters) - Carphone Warehouse, Europe’s biggest independent mobile phone retailer, said it is seeking international partners to expand outside its core markets in Britain and France where consumers are under pressure and economic growth is muted.

The London-listed company said continued weakness in the lower-value pre-pay mobile phone market hit its sales in the fourth quarter, driving like-for-like revenue 5.5 percent lower.

Carphone said it would still meet forecasts for 2011-12 earnings, however, as customers sign up for more profitable long-term mobile phone contracts and buy “non-cellular” products such as tablets, offsetting weakness in the low-margin pre-pay segment.

“We expect to deliver full year profits for CPW Europe in line with guidance, despite the market shift from 18 to 24 month contracts, a material decline in the prepay market and a tough consumer environment,” said Roger Taylor, chief executive of Carphone Warehouse.

Taylor added the company is now looking to expand in markets like China, Latin America and Eastern Europe, seeking similar agreements to its Global Connect venture with U.S. retailer Best Buy.

The U.S. company plans to open 14 Best Buy Mobile SWAS stores within Best Buy’s China branded stores, and the Global Connect agreement would entitle Carphone to a 20 percent share of incremental earnings from these SWAS stores.

“We are exploring similar what I call ‘store within a store’ opportunities with business partners around the world,” Taylor told Reuters, describing it as a “capital-light model”.

“I’m traveling a lot around the world trying to explore who are the best partners and the best markets. It’s something which we are very keen to do.”

In addition to China, Taylor said Mexico and some markets in South America and Eastern Europe have been identified as potential areas of interest.

“[These markets] have to have characteristics that suit our business: we want high ARPUs (average revenue per unit), large population, competitive environment between networks. They are all important dynamics.”

The company said in November that full year operating profit would be at the lower end of a 135 million to 150 million pound forecast - effectively flat compared to the previous year.

The firm said on Wednesday sales at CPW Europe stores open over a year fell 5.5 percent in the three months to end-March, with connections down 19 percent.

That compared with analysts’ average forecast for a like-for-like sales fall of 5 percent, according to a company poll, and with a third quarter decline of 4.7 percent.

“We estimate that the overall prepay market in Q4 was down 30-40 percent in the UK, similar to Q3, driven by a lack of attractively-priced smartphone products in this segment, and a weak consumer environment,” the company said in a statement.

Carphone’s Virgin Mobile France joint venture posted a 21 percent rise in revenue, also reflecting growth in the postpay market.

“Faced with increased levels of competition in the French market since early January, the business proved to be resilient,” the company said.

Many European retailers are struggling as shoppers are squeezed by rising prices, subdued wages growth and government austerity measures and worry about the eurozone debt crisis.

Taylor said two thirds of the British populace did not own a smartphone but he expected this to change if more smartphones were priced between 50 pounds and 100 pounds, which would also boost the ailing prepay market.

“What we need is a catalyst to get the prepay market going again and I think the only (way) that’s going to happen is when there are smart phones available at that pricing point. Generally that’s below 100 pounds,” he said.

Shares in Carphone, which have lost nearly a third of their value over the last year, climbed 3.8 percent by 1031 GMT on Wednesday, valuing the company at around 647 million pounds ($1.04 billion).

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