Carphone Warehouse is to close its 'big-box' Best Buy stores in the UK, sell off its interest in Best Buy Mobile and return a chunk of money to shareholders.
"The eleven Best Buy UK 'Big Box' stores have performed exceptionally at the level of customer satisfaction, but they do not have the national reach to achieve scale and brand economies," conceded Roger Taylor, chief executive of Carphone Warehouse.
"Due to the lack of visibility of an acceptable rate of return on historical and future potential investment we have decided against rolling out more 'Big Box' stores and we will be closing our existing stores, subject to consultation with our employees," Taylor added.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The company anticipates further operating losses of around £25m-£30m through to closure. The cash costs of closure are expected to amount to a further £65-75m after tax. Non-cash asset write downs are expected to be in the region of £40m-£45m. "We estimate that the group's share of the total net cash investment from inception to closure will be in the region of £100m," the company statement said.
The company has moved to simplify its business partnership with US consumer electronics giant Best Buy through a series of disposals to the US company and the formation of a new joint venture.
Carphone Warehouse is selling its share of Best Buy Mobile's US and Canadian business to the US firm for £838m. The company intends to return £813m of cash to shareholders through a share issue which will give shareholders the option of income or capital.
Best Buy Europe will receive no further profit share from Best Buy Mobile US and Canada beyond September 2011. The group's post-tax share of Best Buy Mobile profit share was £35m for the year ended 31 March 2011 and £17m for the six months ended 30 September 2011.
As part of the steps to formalise the long-term ownership of Best Buy Europe, Carphone Warehouse and Best Buy will each grant the other a call option to acquire their respective 50% stakes in Best Buy Europe. Both options will be exercisable from March 2015, with Best Buy having the first opportunity to purchase the Carphone Warehouse stake at fair market value. If Best Buy chooses not to exercise this option, then the Carphone Warehouse will have the right to purchase Best Buy's stake at a 10% discount to fair market value. If neither party exercises their call option, then both options will roll forward every three years.
The company has formed a new profit sharing joint venture with Best Buy, called Global Connect, with the aim of replicating the successful Best Buy Mobile business model in areas outside of North American and Western Europe.
The new venture is a "capital-light" model and is likely to include partnerships with major retailers in target markets. Carphone Warehouse will share the economic value added from Global Connect with Best Buy in all markets, including China and Mexico, where Carphone Warehouse will be partnering with local Best Buy operations. A new Global Connect board will be formed, to be chaired by Roger Taylor. Plans are currently being developed and the parties intend to make a formal announcement on new territories in the near future.
In a separate announcement, Carphone Warehouse (CPW) said revenue in the six months to the end of September slipped to £1,587m from £1,668m the year before.
Profit before tax but excluding exceptional items tumbled to £5.3m from £23.7m at the interim stage last year. Underlying earnings per share declined to 1.2p from 5.5p, reflecting incremental Best Buy UK losses and expected seasonality in CPW Europe, its 50-50 joint venture with Best Buy.
As expected by management, CPW Europe saw earnings before interest and tax more than halve to £20.0m from £44.2m the year before, with like-for-like sales down 3.9% year-on-year.
Virgin Mobile France, in which it has a 47% stake, saw revenue grow by 22% to £158.1m from £193.0m last year.
Full year earnings guidance ranges for both CPW Europe and Virgin Mobile France remain unchanged.
Unlike last year, the company is paying an interim dividend, shelling out 1.75p per share.
Shares of Carphone Warehouse reacted well to the decision to cut its losses on the UK stores, and were up 10p to 366p in early trading.
--
jh
-
Which UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
