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RadioShack Reports Net Loss, Lower Comps

10/25/2006 10:37:00 AM Eastern

Fort Worth, Texas – RadioShack reported a net loss of $16 million and 9.6 percent lower comp store sales for the quarter ended Sept. 30 versus the same time last year.

Net income for the third quarter of 2005 was $108.5 million and was helped by a non-cash gain of $56.5 million due to the reversal of a tax contingency reserve.

Third quarter 2006 pre-tax earnings were negatively affected by the non-cash write-down of $29 million of assets associated with RadioShack's wireless kiosk operations; $18 million in costs associated with the company's turnaround plan; and lower wireless sales. RadioShack's cash position increased $229 million at the end of the third quarter of 2006 to $276 million versus $47 million at the end of the third quarter of 2005. The cash position was driven by improved working capital management.

“Though too early in the management transition to see fundamental change in business trends, RadioShack made some important achievements in Q3 towards improving its operations,” said Julian Day, chairman/COO. “During the quarter, we streamlined costs, better aligned people and roles and strengthened our balance sheet.”

Third quarter 2006 comparable store sales were down 9.6 percent versus the third quarter of 2005. An income statement reclassification relating to the sale of prepaid wireless airtime, due primarily to changes in contracts, reduced total sales and comparable store sales by approximately 300 basis points but did not impact operating profit. Comparable store sales adjusted for prepaid wireless airtime were down 6.8 percent. This decline was mainly driven by lower post-paid wireless sales partially offset by increases in personal electronics and accessories.

Total sales in the third quarter of 2006 were down 11 percent to $1.06 billion versus total sales of $1.19 billion for the same period last year. RadioShack had 4,460 U.S. stores at the end of the third quarter of 2006, down 530 from the previous year. The impact on total sales from the lower store base was 5.66 percent.

The third quarter 2006 operating loss was $15 million as compared to operating income of $89 million last year. The loss was driven by lower gross profit and higher operating expenses. The gross profit decline was driven by lower sales and an unfavorable merchandise mix of both wireless handset units and accessories. Wireless results were negatively impacted by a significant mix shift to lower margin pre-paid units from higher margin post-paid units. Accessory sales growth in the quarter was driven by lower margin accessories including MP3 accessories, flash memory and Bluetooth products.

Operating expenses were $503 million in the third quarter of 2006, up $24 million versus the prior year. Two types of charges drove the increase in operating expenses partially offset by a $23 million decrease due to headcount reductions and reduced advertising spending. These types of charges were $29 million for the non-cash write-down of intangible assets and goodwill related to the company's wireless kiosk business in warehouse clubs; and $18 million related to turnaround activities such as severance, lease terminations, and store liquidations.

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