Best Buy, Carphone to Open 8-10 Best Buy Europe Stores By March 2011

Best Buy and its Carphone Warehouse subsidiary will open 8-10 Best Buy Europe stores by next March, short of its goal of having nine in place by this fall (CED Dec 1 p1), senior executives said Monday at a U.K. investor conference. But both retailers are “absolutely committed” to expanding the chain and will incur $54.1-$67.8 million in capital expenses in the coming year, CEO Roger Taylor said. The chains also will invest $108.2-$123.7 million in Best Buy Europe this year, he said.

Carphone was expected to open its first 50,000-square-foot Best Buy store Monday in Thurrock, England. Stores in Southampton and Merry Hill, near Birmingham, are to open in June, and in Aintree, Liverpool and Croydon later this year. Best Buy will be a direct competitor to DSG International’s PC World and Currys chains, which are the U.K.’s main electronics retailers. Best Buy Europe will initially rely on third-party distribution centers to carry inventory. It hasn’t decided when Best Buy Europe might add its own warehouses, Taylor said. “I'm not sure whether that is 20-30 stores or how the online business grows,” he said.

Best Buy Europe’s operating loss will grow to $67.8-$69.6 million in fiscal 2011, Carphone executives said. It posted a $32.4 million operating loss in fiscal 2010. Best Buy Europe is targeting “mid-single"-digit earnings, before interest and tax (EBIT), said Taylor, who declined to disclose when that goal will be achieved. Best Buy Europe store opening costs average $1.5 million, Carphone said. Best Buy Europe will introduce an online business this fall, the company said.

While Best Buy Europe plans to have eight stores open by 2011, the joint venture needs to see “how they trade before we commit fully to having 100 by 2013,” Carphone Chairman Charles Dunstone said. Best Buy Europe “will try not to flood its stores with products you can just as easily buy online,” Taylor said. The chain “will promote and sell product categories where we can make a difference,” he said.

Best Buy Mobile is expected to contribute $386-$394 million in profits to Carphone’s earnings in the 2011 fiscal year, company officials said. While Best Buy Mobile has achieved a 5 percent share of cellphone retail sales in the U.S., the goal is more than double that number, Taylor said. “We are not there today, but we're very confident that the brand can stand for itself in terms of buying a cellphone,” he said. Sales of cellular service plans through Best Buy Mobile are expected to grow 15-20 percent his year, Taylor said. The number of service plans sold at Best Buy Mobile grew to 1.43 million in Q4 ended April 3 from 1 million a year earlier, Carphone said. For the year, subscription sales jumped to 5.5 million from 4.2 million, Carphone said.

Best Buy Mobile could have 500 stores open within the “next several years,” Taylor said. Best Buy CEO Brian Dunn last week told the Financial Times that there eventually might be up to 1,000 U.S. Best Buy Mobile stores, without disclose timing.

Best Buy plans to add 75-100 Best Buy Mobile stores this year (CED March 26 p2), company officials said. Best Buy also runs mobile stores within its 1,070 larger outlets. Standalone Best Buy Mobile stores average 1,500 square feet. Carphone is testing new stores measuring more than 1,000 square feet that carry a wider assortment of mobile products, including notebook and netbook PCs, Taylor said. Many of Carphone’s existing 2,430 stores in the U.K. and Europe average 700 square feet. Carphone ended fiscal 2010 with 2,224 company-owned outlets, down from 2,240 a year earlier, it said. The number of franchisees slipped to 206 from 219, Carphone said.

Meanwhile, Carphone credited growth in the Best Buy Mobile stores for its full-year earnings rising to 12-13 cents per share, ahead of guidance. It posted a 6-cent profit last year. Carphone expects earnings per share to rise 40-45 percent in fiscal 2011, company officials said. Carphone’s same-store sales are expected to grow 0-3 percent in fiscal 2011 as margins increase 15-20 percent.

Carphone, which in March split off from its TalkTalk Group residential broadband subsidiary, now consists of the Best Buy Europe joint venture, Carphone Warehouse Europe, and a 47.5 percent share in mobile operator Virgin Mobile France. Virgin Mobile France ended fiscal 2010 with 1.7 million subscribers, having completed buying service provider Tele2.