October 10, 2008 / 1:02 PM / 11 years ago

Carphone, Best Buy to unveil Europe expansion plan

LONDON (Reuters) - Britain’s Carphone Warehouse and U.S. partner Best Buy could signal plans for over 100 new UK shops on Tuesday, as the first step of their assault on Europe’s electrical goods market, analysts believe.

The strategy announcement will come alongside what is likely to be a downbeat trading update from Carphone Warehouse as it battles a slowdown in consumer spending, and will add to pressure on embattled electrical goods groups DSG and Kesa.

Best Buy agreed in May to buy 50 percent of Carphone Warehouse’s European and U.S. retailer interests for 1.1 billion pounds ($1.9 billion), creating a joint venture to expand into Europe.

The venture’s chief executive, Roger Taylor, told Reuters in July that it would open its first store in the UK in the first half of next year, but it has not given further details.

The Financial Times said in August, without citing sources, that the venture was planning 200 UK stores over the long term.

One industry source said that 200 stores was a plausible ultimate goal for full coverage in the UK, but that for the shorter-to-medium term analysts’ forecasts of a lower number were more realistic.

Cazenove analysts said in August they were expecting 120 stores by March 2014.

The new stores are expected to be similar in size to Best Buy’s 30,000-square-feet outlets in the United States, with the aim of being one-stop shops for consumers’ communications and entertainment needs, spanning mobile, broadband and computer technology, with audio-visual equipment and technical support.

Analysts will also be looking for details on the likely cost of the new stores, when the venture will break even, and which other countries it plans to target.

Carphone Warehouse, Europe’s biggest independent mobile phone retailer and Britain’s third-largest fixed-line and broadband provider, will publish a second-quarter trading update on the same day.

In July, the group cut its full-year forecast for new broadband customers to between 200,000 and 250,000 from 400,000, and said revenue at its UK fixed-line telecoms business would be broadly flat, versus previously expected growth of 4 to 5 percent, due to a consumer downturn and weak housing market.

Analysts think the launch of the 3G iPhone earlier this year will continue to support mobile phone subscriptions.

However, Kaupthing’s James Crawshaw thinks the economic downturn may lead many subscribers on fixed monthly contracts to switch to less profitable pre-pay deals, and that Carphone Warehouse might also have to cut its broadband target again.

“We believe the investor day should be a positive catalyst as Carphone Warehouse reveals more details on the plans for the retail JV roll out with Best Buy in Europe,” he said in a research note.

“The trading update may, however, dampen investor enthusiasm if Carphone reduces its outlook once again.”

Analysts expect Carphone Warehouse to report a 7.4 percent rise in mobile connections to 3.05 million, with subscriptions up 8.1 percent to 1.14 million, according to a company poll.

The net number of new broadband customers is forecast to rise 46,000 to 2.8 million, up from 41,000 in the first quarter.

Carphone Warehouse shares have lagged the DJ Stoxx European retail index by 33 percent over the past year. At 1130 GMT, they were down 7.8 percent at 142 pence, in line with a plunging UK market, valuing the firm at about 1.3 billion pounds.

Editing by Paul Bolding

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