Carphone beats first-quarter forecasts on smartphone sales

A Carphone Warehouse sign hangs outside a branch in west London May 8, 2009.

LONDON (Reuters) - Carphone Warehouse (CPW.L) said demand for smartphones would help it cope in a muted consumer environment, as it beat quarterly revenue forecasts and hailed a strong debut for its new megastores with U.S. partner Best Buy.

Roger Taylor, the chief executive of Europe's biggest independent mobile phone retailer, said on Wednesday he did not expect a big improvement in consumer demand for the foreseeable future, though he thought Europe would not slide back into recession.

"It feels like we can continue for the rest of this year and into the first half of next year with the benign environment we've got, and consumers seem quite resilient to that," Taylor told Reuters.

Europe's retailers are mostly struggling in a sluggish economic recovery, and some fear steps to rein in government deficits -- like higher taxes and public spending cuts -- could hit consumer confidence in the coming months.

Carphone, which owns 50 percent of a venture with U.S. electricals group Best Buy (BBY.N) and a 47.5 percent stake in Virgin Mobile France, is benefiting from surging demand for smartphones with Internet access like Apple's APPL.O iPhone.

Sales at European stores open at least a year rose 3.7 percent at constant currencies in the 13 weeks to July 3, its fiscal first quarter, ahead of analysts' average forecast of 2 percent in a company poll.

Taylor said strong sales of the iPhone and Research In Motion's (RIM.TO) Blackberry products had been joined by demand for devices using Google's (GOOG.O) Android software, and that Microsoft's (MSFT.O) new software platform would spark another wave of new products later this year.

"We're in an interesting place of product development and we're undoubtedly doing well on the back of that," he said.

MEGASTORES

Carphone said connections at the U.S. mobile business of its venture with Best Buy jumped 29.7 percent to 1.43 million, topping analysts' average forecast of 20 percent, and that Virgin Mobile France made 93 million euros (77.7 million pounds) of revenues.

But it kept its full-year forecasts, which include like-for-like sales growth of 0 to 3 percent at its European shops, and 15 to 20 percent growth in connections at Best Buy Mobile.

Taylor said the first quarter was one of the least important for the business and it would have a better idea of its full-year potential closer to Christmas.

"Encouraging progress within its core business divisions," was how Credit Suisse analysts summarised the news.

At 0750 GMT, Carphone shares were up 0.4 percent at 216.75 pence, just ahead of the STOXX 600 European retail index .SXRP. On Tuesday the stock hit its highest level since its demerger from telecoms business TalkTalk (TALK.L) in March.

Carphone said the Best Buy venture's three new electrical goods megastores had enjoyed an "extremely positive" customer response, although it did not give any figures.

The venture plans to open 8 to 10 megastores by March 2011 and has said it could eventually build a chain of 80 to 100 shops to challenge Britain's biggest electrical goods groups DSG DSGI.L and Kesa (KESA.L).

DSG, which runs the Currys and PC World chains in Britain, has responded by opening its own megastores. The company said on Monday it had had agreed a deal for Carphone's rival Phones 4u to roll out at least 50 "shop in shops" in larger stores.

Taylor was relaxed about the challenge.

"I don't see that (the Phones 4u deal) as a threat at all to what we do," he said. "Our stores have got our own people running every single product category ... and I think customers like that because they know who to come back to."

(Editing by James Davey and Karen Foster)