RadioShack Q2 Sales Rise 3%, Net Jumps 19%

FORT WORTH, TEXAS— Strong wireless and computer business helped RadioShack bump up overall second-quarter sales 3 percent to $1.1 billion, compared with a year-ago $1 billion, while greater productivity helped boost second quarter net income 19 percent to $68.3 million, from $57.5 million in the same three months in 2003.

Wireless communications department sales jumped 16 percent in the second quarter, and RadioShack's two-year projection for this category anticipates growth of more than 5 percent to 8 percent, due to higher average selling prices associated with enhanced functionality, a strengthened upgrade program and better store-execution. Comp-store sales for the three months, ended June 30, also increased 3 percent.

This healthy forecast goes along with all-around positive expectations announced by the retailer. "We are very bullish on the long-term outlook for RadioShack," said Len Roberts, chairman/CEO. "Our sound operations today, coupled with exciting growth initiatives that are starting to gain traction, make for a very promising future for years to come," he said.

Those initiatives include a possible rapid expansion of its C3 prototype store rollout, and the development of alternative sales channels through which some 15 percent of RadioShack's merchandise mix will be shifted within three years.

In a conference call, Roberts pointed to a current 10-mall test of Sprint Wireless kiosks — a concept that will be expanded and may be extended to other product categories — as one example of new channel expansion. The kiosks, he said, provide a fast-turn, low-overhead way to grow square footage, and initial results have exceeded expectations.

The balance of RadioShack's assortment will revolve around seven core product platforms, among them wireless, accessories, power, services, personal electronics (including wellness and safety products) and modern home (home networking and limited home entertainment offerings). Within those categories, Roberts said the overarching emphasis would be on innovation and RadioShack-patented products.

Shorter term, the chain has high hopes for its first-time introduction of Monster Cable accessories and Sirius portable receivers, docking stations and boomboxes in the third quarter. Roberts said the 30-SKU Monster assortment, which begins shipping next month, will help plug a "big hole in our home entertainment area" that wasn't being satisfied by RadioShack's private-label offering.

The company is also enthusiastic about its handset repair center, which is enjoying a "banner year," has gained "significant share" in the $1 billion domestic market, and is on track to generate $30 million in revenue by 2005 — prompting the company to consider adding other product categories to its repair menu.

In other financial highlights, RadioShack reported inventory turnover for the trailing four quarters, ended June 30, was 2.8 times, compared with 2.6 times for the corresponding period the prior year, while average ticket was up 11 percent to $32.95.

The retailer said gross margin in the second quarter increased less than one point to 51.2 percent, while expenses decreased 1 percent in the three months to 38.2 percent, compared with 39.7 percent in the year-ago period. Expenses are expected to be flat through the next six months.

Updating two-year expectations for other key departments, RadioShack said home entertainment will likely be less than flat, while toys/personal electronics will likely be less than 3 percent to 5 percent.

Capital expenditures for the year are anticipated at $285 million, of which $175 million is dedicated for the retailer's new corporate headquarters campus and $110 million for more typical expenditures. In 2005, the total will run from $200 million to $250 million, about normal for RadioShack.