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RadioShack's Choice Of Chairman/CEO Hailed

7/17/2006 02:00:00 AM Eastern

Retail analysts largely lauded RadioShack's choice of ex-Kmart CEO and Sears veteran Julian Day as its new chairman/CEO but cautioned that significant hurdles remain for the iconic consumer electronics chain.

Day, 54, is regarded as a retail turnaround specialist with a knack for cost-cutting and is credited with leading Kmart out of bankruptcy. He joined the discounter as president/COO in March 2002, rose to CEO a year later, and stepped aside as the company morphed into Sears Holdings, where he remains a director. Prior to Kmart, Day was chief financial officer and COO of Sears, and before that was chief financial officer of Safeway.

Day succeeds Claire Babrowski, who assumed the additional role of acting CEO in February 2006 after chief executive Dave Edmondson resigned during an investigation into irregularities regarding his resume. Babrowski remains president/COO.

RadioShack's presiding director Thomas Plaskett thanked Babrowski for her efforts as acting CEO, acknowledging that she “stepped into the top position during a difficult time.” In discussing Day's background, Plaskett said, “His extensive knowledge of retail operations and his experience in revitalizing some of the great American retail brands make him the ideal person to lead RadioShack as we re-establish its pre-eminent position in the industry.”

Analysts agree. Banc of America's David Strasser described Day as a “retail visionary” who together with Babrowski can “reinvigorate the company” by leveraging his command of such disparate retail disciplines as finance, operations, logistics/supply chain and IT. Lehman Brothers' Alan Rifkin concurred. “We believe that Mr. Day's appointment, together with Claire Babrowski's leadership, significantly bolsters management ranks at RadioShack,” he said.

Investors also showed their approval by snapping up shares of RadioShack, which soared 23 percent on the day of the announcement.

Nevertheless, Rifkin cautioned, “We recognize that RadioShack still has a very significant turnaround ahead of itself, which will likely take time.” Banc of America's Strasser was blunter: “RadioShack has to become more relevant in wireless, or find the next technology to help make them relevant as a retailer again. This is the most significant challenge they face.”

In its most recent financial statement RadioShack's income in the first quarter fell 85 percent to $8.4 million, down from $55 million during the same quarter last year. Sales for the quarter were up 3 percent to $1.2 billion, but comp-store sales were down 1 percent. RadioShack announced in February that it would close 400 to 700 of its more than 5,000 company-owned stores in the next 18 months. The chain operates more than 6,000 company and dealer stores.

RadioShack also reported Day's compensation package, which includes a base salary of $1 million per year; participation in the company's existing bonus plans; stock option grants to purchase 4 million shares of RadioShack common stock, of which 2.5 million of the options are an employment-inducement award outside of RadioShack's stock option plans that require public announcement in accordance with NYSE Rule 303A.08; 2 million option grants will vest in increments of one-fourth beginning on the first anniversary of the date of grant; and 2 million option grants will vest over four years based on performance targets related to increasing shareholder value.

Separately, Hall Financial Group, a private investment firm, has purchased 5.64 percent of RadioShack's outstanding shares. The move is believed to be a passive investment only.