Tight times and iPhone bite into Fone Zone's profit

Consumer's reluctance to replace mobile handsets has led to a decrease in profit revenue forecasts for retailer Fone Zone which could result in the closure of some stores.

David McMahon, CEO of Vita Group (owner of Fone Zone), said Fone Zone now expects to record $18 million to $19 million earnings before tax depreciation amoritisation in financial year 2008, down from a previous guidance of $23.5 million to $24.5 million.

“A decline in consumer spending in recent months appears to be delaying the replacement of existing mobile handsets and has led to a decrease in revenue and profit for the Fone Zone business,” said McMahon.

In an interview with CRN, McMahon said one of the contributing factors to the slow down in handset replacement has been the wait for Apple's 3G iPhone.

"People aren't making handsets decisions at the moment and there is a certain sector of the market waiting for the Apple's iPhon 3G handset. Fone Zone's not counting on the launch of the product to turn things around because we are exclusive to Telstra and the telco hasn't been included in Apple's distrbution, as yet" said McMahon.

According to McMahon, with its independent Apple retail chain, Next Byte, performing ahead of expectations, Vita Group plans to realign some of its Fone Zone stores in the coming months.

“Some stores will be relocated, a number will be converted to Next Byte stores and a number of underperforming stores will be closed,” said McMahon.

The profit impact arising from the impairment of assets associated with this realignment is $1.5 - $2 million and is included in the revised outlook for the current financial year, he said.

McMahon said the Vita Group doesn't believe retail conditions will change and will keep the Fone Zone business moving forward in the best way it can - through success in customer service and store realignment.