Europe's biggest independent mobile phone retailer Carphone Warehouse missed fourth quarter forecasts for broadband and has lowered its outlook due to increased costs, sending its shares tumbling on Tuesday. The group did connect more mobile phone customers than forecast by analysts but the market focused on the negative news which sent its shares down over 11 percent.
Analysts noted concern over the comments on net debt - which was affected by the weakening of sterling against the euro - the increased capex budget and the fact the company marginally downgraded its full-year 2008 pretax profit forecast. They also noted that the rate of physical store expansion would be more measured this year, reflecting Carphone's "objective of focusing on operational improvements and the softer economic environment".
"In this market, the negative bits will catch the attention," one analyst said. At 1240 GMT the shares were down 9.5 percent at 241.5 pence. Analysts at Cazenove said they were turning more cautious on the outlook given a changing retail model and a broadband market that was only going to get more competitive."
In the fourth quarter, Carphone added 109,000 broadband customers which was below analyst expectations at 128,000, to give it a total of 2.7 million. Of those, it had 1.8 million customers unbundled on its own network having moved them off from BT, equivalent to 67 percent of the base. Having the customers on their own network gives Carphone more control and greater profits per customer. Mobile connections grew by 12 percent to 2.7 million, with 1.1 million of those the more profitable subscription connections, while the rest were pre-pay or SIM-free phones.
"Our performance over the last three months has been good in a slower consumer environment," Chief Executive Charles Dunstone said in a statement. Carphone said it now expected full-year 2008/09 pretax profit to be between 215-220 million pounds ($434.5 million), slightly below the City forecast of 220-225 million pounds, due to additional interest costs of higher net debt.
Analysts also noted concern about the group's debt. "At third quarter '08, Carphone guided full-year 08 net debt at 650 million pounds, impacted by 30 million pounds of adverse currency movements year to date," Citigroup said in a note to clients.
"Management now expects 120 million pounds negative currency impact and 50 million pounds of incremental capex and subscriber acquisition costs, implying full year net debt at around 800 million pounds."
Looking ahead to 2009, the group forecast distributional revenue growth of 9 to 10 percent, driven by growth in mobile connections of 8 to 10 percent which was seen as reassuring in a possibly tough consumer environment. The fixed-line business was forecast to show growth of 4 to 5 percent for the year to March 2009 and it said it expected to add around 400,000 broadband customers.
"Looking forward, we anticipate a year of considerable further progress," Carphone said. "Although we are mindful of a tough consumer environment, we see significant opportunity to evolve our retail model to address the opportunities of a changing marketplace." One area that analysts did welcome was the plans for clearer operational autonomy for the two divisions, which is likely to result in demerger speculation.
Carphone said its progress in the United States where it has a joint venture with consumer electronics retailer Best Buy was very encouraging and it would further accelerate the roll-out there. But it said its rate of store expansion elsewhere would be more measured.
On possible changes within the UK, Finance Director Roger Taylor told Reuters they would look at the UK division of broadband operator Tiscali like they would with any asset but this did not mean they would definitely bid.
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