UPDATE 3-Smartphones and tablets keep Carphone confident

13:00, Wednesday 27 July 2011

* Q1 core Europe (Chicago Options: ^REURTRUSD – news) underlying sales down 3.3 pct; f’cast down4.75 pct

* Q1 Best Buy Mobile US connections up 12.3 pct; f’cast up17.5 pct

* Q1 Virgin Mobile France net adds 68,000 vs f’cast 40,000

* To announce refinancing of Best Buy Europe in coming days

* Shares climb 7.7 pct, reversing early losses (Adds more analyst comments, updates shares)

LONDON, July 27 (Reuters) – Strong demand for smartphonesand tablet computers is helping Carphone Warehouse ,Europe’s biggest independent mobile phone retailer, to cope withgenerally subdued consumer spending, it said on Wednesday.

the British group, which owns 50 percent of a venture withU.S. electricals group Best Buy (Dusseldorf: BUY.DU – news) , said sales at Europeanstores open more than a year fell 3.3 percent in the firstquarter of its financial year.

That was ahead of analysts’ forecast for a 4.75 percentdecline, and would have been a rise of 2-3 percent if Britishsales had not been hit by a shift to longer phone contracts,chief executive Roger Taylor told Reuters.

Taylor said the group hoped to announce a refinancing of itsBest Buy Europe joint venture in coming days, which DeutscheBank analysts think could open the way for Carphone to returnthe bulk of its 120 million pound ($197 million) cash pile toshareholders this year.

Carphone’s shares, which dipped in early trade, bounced backto trade up 7.7 percent at 436 pence by 1115 GMT.

many European retailers are struggling as shoppers aresqueezed by rising prices, subdued wages growth and governmentausterity measures.

German group Metro (Other OTC: MTAGF.PK – news) on Tuesday reported aweaker-than-expected performance at its MediaMarkt-Saturnbusiness, Europe’s biggest electrical goods retailer, whilerival Kesa has put its loss-making British chain Cometup for sale.

Carphone has fared better than most thanks to its focus onfast-growing markets for smartphones and tablet computers suchas Apple (NasdaqGS: AAPL – news) ‘s iPhone and iPad.

Taylor said that outperformance had continued, though thegroup was feeling the effects of consumer belt-tightening inareas such as high-priced accessories and prepay phones.

“You’re not going to sell 150-pound headsets in thisenvironment as easily as you would in another,” he said in atelephone interview.

“We have to be impacted (by the tough consumer environment),but maybe not as extremely as others.”

Taylor also told analysts Carphone was seeing a pick-up indemand for tablet computers using 3G as well as those linked tosmartphone products, where it can make more money than tabletsthat only use wi-fi.

Connections at Best Buy Mobile in the United States climbed12.3 percent, lagging forecasts for a 17.5 percent rise.

But Taylor said weakness in prepay phones was offset by astronger performance in more profitable contract phones.

Carphone also said it added a net 68,000 customers at VirginMobile France, ahead of an expected 40,000.

Citi analysts saw little change to full-year expectations asa result of the update. They are projecting a 28 percent rise inearnings per share to 18.5 pence.

Taylor said Carphone and Best Buy were still evaluating thefuture of their 11 British megastores.

He declined to comment on whether they are interested inbuying Comet. People familiar with the matter told Reuters onFriday they were not involved in the auction.

Taylor said Carphone was interested in selling propertyassets, but not yet.

“We haven’t seen the yields necessarily contract as much aswe’d like to see,” he said.

($1 = 0.610 British Pounds) (Reporting by mark Potter; Editing by David Cowell and DavidHulmes)

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