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Q1 Financials Provide Varied View Of Retail

5/04/2009 02:00:00 AM Eastern

Amazon.com, RadioShack and Office Depot — three disparate retailers selling CE — all reported their financials in recent days that illustrated changes in the economy and in consumer demand.

Amazon reported strong growth, thanks in part to CE and its Kindle e-book reader; RadioShack posted its strongest first quarter since 2004, while Office Depot felt the continuing pain of its small business customers.

Amazon's net sales rose 18 percent to $4.9 billion and its net income increased 24 percent to $177 million during the first quarter, ended March 31.

Operating income increased 23 percent to $244 million during the period, and would have grown 39 percent excluding the unfavorable impact of currency fluctuations.

The e-commerce king attributed the strong results to demand for its Kindle e-book reader and improved inventory management.

Amazon's performance surpassed projections by analysts, who also credited its expanded assortment, free-shipping offers, accelerating third-party sales, and share gains from liquidated retailers like Circuit City and Linens 'n Things.

Sales within the U.S. and Canada rose 21 percent to $2.6 billion, which Murphy said “stands in stark contrast to e-commerce industry sales growth, which was likely flat to down slightly in the first quarter.”

Sales within the electronics and other general merchandise category, which includes CE and IT, rose 42 percent to $1.2 billion in the U.S. and Canada, representing 45 percent of total North America segment sales.

Operating income for the North America segment rose 15 percent to $150 million and gross margin was 27 percent.

During the quarter the company introduced its second-generation Kindle 2, and more recently announced an expansion of its video-on-demand service, which now offers digital downloads of more than 500 HD titles via select TiVo DVRs and Panasonic Viera Cast-enabled HDTVs, in addition to Roku players, Sony Bravia's Internet video link and home computers.

RadioShack reported strong performances in its digital converter-box and mobile businesses, and a big boost from its online and Mexican operations, which pushed net sales and operating revenues up 5.6 percent to $1 billion for the first quarter, ended March 31.

Net income for the three months rose 11 percent to $43.1 million, and operating margin was 8 percent, the chain's strongest first-quarter showing since 2004, reflecting a 25 percent increase in operating income to $80.1 million.

Same-store sales for company-operated stores and kiosks increased 5 percent during the period, and would be 6.3 percent after adjusting for an additional selling day during the year-ago quarter.

RadioShack chairman/CEO Julian Day pointed to the chain's strengthened balance sheet — a result he said, of “our disciplined approach to working capital management. We continue to believe that a strong balance sheet is important in trying economic times.”

The sales gains included a 5.5 percent increase at U.S. company-owned stores; a 10 percent decrease in kiosk sales due to fewer Sprint kiosks; and a 23.9 percent increase in “other” sales, which included revenue from its new RadioShack de Mexico subsidiary and a 27.6 percent increase in online sales, which offset a 7.9 percent decline in sales at franchised dealer stores during the quarter.

RadioShack partly attributed the comp-store increase to sales of over 1 million digital converter boxes during the quarter, which generated about $70 million in revenue but negatively impacted the gross profit rate by about 1.3 percent.

The company also enjoyed brisk sales in postpaid wireless and flat-panel TV, although those gains were partially offset by a decline in the GPS, wireless accessories, digital imaging and digital music player categories.

Office Depot reported that soft demand by consumers and small businesses, and a $120 million pretax charge for an ongoing company overhaul, sent the chain's sales and earnings sharply lower for the fiscal first quarter, ended March 28.

Net sales fell 19 percent to $3.2 billion, and the office-supply chain recorded a net loss of $55 million, compared with earnings of $69 million for the year-ago period. Excluding the impact of the charges, earnings fell 65 percent to $27 million.

The charges stem from the company's continuing “strategic business review” and relate primarily to lease accruals, severance expenses and inventory write downs as it closed facilities during the quarter. It said the actions helped lower quarterly operating expenses by $192 million, excluding charges.

The company anticipates taking another $110 million in charges during the balance of the year, but says the restructuring will help boost total 2009 earnings before interest and taxes (EBIT) by about $130 million and cash flow by $85 million.

In addition, a series of initiatives including sale leasebacks of owned properties in the U.S. and Europe, dividends received from a joint venture, tax refunds, and the benefit from reduced capital spending helped the company realize about $160 million in cash during the quarter.

Within its North American retail division, which operates 1,138 stores in the U.S. and Canada, sales sank 16 percent to $1.4 billion and same-store sales fell 17 percent during the quarter.

The chain attributed most of the decline to “macroeconomic factors as consumers and small business customers reduced their spending, especially on large-ticket items like furniture and computers.” The decision to be less aggressive with advertising promotions in certain categories also contributed to the sales decline, it said.

Office Depot closed 107 stores during the period and relocated one.

For more on all three retailers' financial reports, visit www.TWICE.com.