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R’Shack Q1 Sales, Profits Fall

4/28/2008 12:35:00 PM Eastern

Fort Worth, Texas — RadioShack reported lower first quarter sales and profits on weakness in its Sprint subscription wireless business.

Net income fell 8.7 percent to $38.8 million for the three months ended March 31, while net sales slipped 4.4 percent to $949 million during the period.

Comparable store sales declined 4 percent.

The company attributed the declines to poor sales within its Sprint postpaid and related wireless accessory business, as well as increased promotional activity and a higher mix of lower margin products. The chain specifically cited continued price pressure on GPS units, and a shift in the mix of its wireless business from new subscriptions to upgrades.

Nevertheless, RadioShack reported “strong sales increases” in GPS units, prepaid wireless, video gaming, digital cameras and media storage, and said that minus the impact of Sprint, comp store sales would have increased 0.7 percent.

“We are pleased with the overall outcome for the first quarter of 2008, especially in light of the difficult economic environment,” said chairman/CEO Julian Day.

Day noted that following a “very challenging” January, sales and earnings trends improved “significantly” during February and March, with comp store sales falling a more modest 1.2 percent for the two months.

Earnings declines were partially offset by a 7.9-percent cut in selling, general and administration expenses (SG&A), to $362.4 million. The cuts were largely made in headquarters and field payroll expenses.

While comp sales exceeded Wall Street’s forecasts, analysts saw limited long-term upside. “There is no organic growth via stores or new products,” observed Banc of America Securities’ David Strasser in a research note. “The problem remains their portfolio of products, as most new items carry lower gross margins and impede gross profit dollar growth.”

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