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RadioShack Posts Higher Q2 Sales, Lower Net Income

7/19/2005 08:46:00 AM Eastern

Fort Worth, Texas — Wireless gives and wireless takes, with RadioShack reporting a 2 percent increase in wireless sales from its kiosk channel, offset by a decline in sales of wireless in the retailer’s stores. Lumping the wireless seesaw with a sales rise in most of the company’s seven merchandise platforms, overall sales in the second quarter climbed 4 percent, hitting $1.09 billion, up from a year-ago $1.05 billion. Comp-store sales, however, declined 1 percent in the three months.

RadioShack, due to lower comps in the second quarter, and more specifically a weakness in its core store wireless business, recorded a 23 percent drop in net income, to $52.3 million from $68.3 million in the same period in 2004.

In a conference call, CFO David Barnes attributed the year-over-year weakness in wireless to a lack of new handset features, greater pricing pressure and the absence of incentive bonuses from carriers.

Barnes added that RadioShack had restructured its agreement with Sprint, resulting in higher handset costs but also higher sales commissions. The company is also renegotiating its contracts with Sprint and Verizon, which will be up for review in the next 12 months. President/CEO David Edmondson said he is “extremely pleased with how the discussions are progressing.”

Wireless, and underperformance in its mall-based stores notwithstanding, “non-wireless product lines and key initiatives, such as our store standard operating procedures and new store format, are performing well and this gives us confidence in the future,” Edmondson said. Specifically, sales of personal CE products including satellite radio, MP3 players and digital cameras rose 18 percent during the quarter, Barnes said.

Operating income during the three months, ended June 30, dropped to $92.4 million, compared with $112.6 million in the same period last year. Expenses in the quarter were up 7 percent, as planned, said RadioShack, due primarily to new growth channels such as the wireless kiosks.

Looking ahead, Barnes forecast better comps in the back half of the year due to a better merchandising assortment; a new advertising campaign; a revamp of its e-commerce business; improved standard operating procedures; and an acceleration of its satellite radio business, buoyed by Sirus’s debut of Howard Stern. During the second quarter, RadioShack became the largest seller of Sirius -subscriptions, Barnes said.

— Additional reporting by Alan Wolf

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