Mobile sales pick up for Carphone Warehouse

Carphone Warehouse showed further signs of recovery yesterday, outperforming a flat mobile phone market to report a rise in sales.

Charles Dunstone, the chief executive, said the European handset market had stabilised after slumping last year. "In 2000, the market was crazy. Then operators reduced subsidies on prepaid phones so in 2001 the market fell by 40 per cent. This year it is stable."

The group, which has recovered since issuing a profits warning in January, said mobile phone connections had jumped by 16 per cent to 1.16 million in the first four months of its financial year. This maintained the momentum at its annual results meeting last month, when the group sparked hopes of an upturn by indicating that current trading had picked up.

Carphone Warehouse said that its retail revenues were up by 5.2 per cent on a like- for-like basis and its retail gross margins were 5 per cent higher. Mr Dunstone said the retailer was in a much stronger position in the wake of a shake-up in the handset market. "A lot of competition has disappeared. Stores have closed down and stopped selling mobiles. Nothing has changed to suggest [stronger sales] won't continue all year," he said.

He said the launch of more new handsets than last year had helped, although he admitted the imminent arrival of third-generation phone services – due to be introduced in the UK by Hutchison 3G in October – was unlikely to have much of an effect this year.

Shares in the group, which had rallied sharply ahead of the trading update, fell 6.5p to 79p. They were floated less than two years ago at 200p. One analyst, who did not want to be named, said: "The market had been looking for upgrades but the group was being conservative."

The group, which is heavily dependent on sales in its key Christmas trading period, said the trend was up both in the UK and across its operations in mainland Europe. Mr Dunstone said Germany – where the group has shut 30 of its worst performing stores – was still an issue. "Trading is ahead of plan but it still needs to do better to break even." He confirmed that the company planned to pull out of Germany if it was still making a loss there by the end of the year.

Mr Dunstone said the story of mobile phone raids on his stores had been "over exaggerated". He added: "We get an attack on average once a week. We have 470 stores in the UK so that's 50 stores a year. Some are quite serious, some are pathetically amateur. It's an ongoing battle for anyone in retail." He said the problem was uninsurable.

One analyst, alluding to Carphone's aim of driving revenues from selling more insurance policies, said: "The challenge might not be at a shop level but at a customer level." The number of policyholders increased to 975,000, the group said.

Mr Dunstone said operators such as Vodafone and Orange were becoming "more aggressive" in reintroducing subsidies on mobile handsets. He said the cost of handsets sold as part of a contract had fallen by about £20 to £30 as "operators try to encourage prepaid customers to move to subscription".