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RadioShack Q3 Profit Rises On 2% Sales Increase

10/21/2003 11:04:00 AM Eastern

Fort Worth, Texas — The tandem of vendor initiatives, buying disciplines and field execution drove profit higher at RadioShack during the third quarter, with the retailer recording $57.1 million in net income for the three months, up from $44.9 million in the year-ago period.

RadioShack reported a 50.1 percent profit margin for the third quarter, up from 49.8 percent in the same period a year earlier. The combined improvement in sales and gross margin was a first for the past 19 quarters — with the retailer posting side-by-side higher numbers for these two key financial bellwethers.

Total sales at RadioShack climbed 2 percent in the third quarter, ending Sept. 30, reaching $1.06 billion, compared with $1.05 billion in the same three months in 2002. Comp-store sales increased 3 percent.

'RadioShack is on the right track,' said chairman/CEO Len Roberts. 'Third quarter financials were the result of striking a very prudent balance between sales and profitability.

'We’re a more efficient organization,' he said, tying this to the growth in sales and earnings. He attributed much of the increase to a disciplined approach to doing business as well as new products, and he anticipates the turnaround will continue into the near future. 'We expect double-digit earnings the next two years and low- to mid-single-digit sales growth,' Roberts said.

Third quarter selling, general and administrative costs were flat in the period, with the company citing more manageable insurance and rent and occupancy costs.

For the nine months, RadioShack sales increased to $3.16 billion, up from $3.08 billion in the same nine months a year earlier. Net income was $171.2 million for the first nine months, compared with $154.3 million in the same period in 2002.

Looking at specific contributions to its third quarter effort, RadioShack told analysts in a conference call that the size of its average sales ticket improved 3 percent in the third quarter year on year, to $29.70. The retailer said it concentrated more on average ticket size, rather than the number of tickets.

At the same time, RadioShack recorded increasing third quarter sales in such hot accessories categories as wireless, power and home networking.

Wireless handset sales, another key category for RadioShack, enjoyed strong gains in the quarter, climbing 12 percent in the three months, compared with the same time frame a year ago, thanks to such customer attractions as cellphone camera functionality. Power accessories sales, led by specialty batteries, power inverters and chargers, climbed 4 percent in the third quarter, while regular batteries and accessories moved up 3 percent.

With the Nov. 24 cellphone number-portability start-up date fast approaching, RadioShack sees this change as a benefit to its business, even with all the extra work about to be piled on store personnel. The chain told analysts it is ready to manage and execute a number of additional-work scenarios brought about by consumers wishing to change carriers.

RadioShack, which is placing less emphasis on computers, said it still maintained healthy sales of computer accessories during the third quarter. With digital cameras now more in favor than computers, the retailer said the gross profit camera gain more than offset the gross profit dollar loss for computers.

Much of the past year, RadioShack concentrated on improving supply-chain management, and sees an opportunity for more of this in 2004 and 2005. At the same time, the retailer is placing an additional focus on technology, and its ability to accelerate consumer adoption rates of new technology products.

RadioShack said it plans to be a 'market maker' — a powerful distribution channel — for the newest in consumer electronics technology in the coming two years. Increased control will come in a more-constraint-free environment, whereby demographics will no longer inhibit movement of particular merchandise.

For example, a select set of stores in a particular area could take the lead in marketing a new product to one specific demographic, said the retailer. Generally, the plan comes down to a focus on service level and the products that need the extra selling mile.