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RadioShack's Q1 Profits Fall 30%

4/25/2011 12:21:08 PM Eastern

Fort Worth, Texas - A problematic T-Mobile business, a larger mix of low-margin handsets, and increased staffing costs for Target Mobile departments contributed to a 30-percent decline in RadioShack's first-quarter earnings.
Profits were also impacted by costs associated with the pay-down of $4.1 million in debt.

Net sales and operating revenues for the three months ended March 31 increased 2.1 percent to $1 billion, and comparable store and kiosk sales slipped 0.6 percent.

Net sales were boosted by a $28.9 million increase in sales at the company's Target Mobile centers, which grew to 887 locations from 104 during the year-ago period. RadioShack expects to operate 1,450 departments for the discount chain by the end of June.

Comp sales were impacted by a decline in the company's T-Mobile postpaid wireless business. RadioShack previously said T-Mobile was in breach of contract, and the two sides have been holding "constructive" discussions since February.

Comps were also hurt by a year-over-year decline in sales of TVs, digital music players and digital-to-analog converter boxes and related antennas, although the decreases were partially offset by higher postpaid wireless sales for Sprint and AT&T.

The company's total mobility business increased 11 percent, which outgoing chairman/CEO Julian Day said "once again demonstrates our unique capabilities to navigate technology change, and to help customers select the right technology and connectivity solutions for their lives."

RadioShack's mobile business will be further boosted this month by the rollout of a new tablet computer assortment.

President/CFO and CEO-elect Jim Gooch said first-quarter results were generally in line with internal expectations, despite a challenging economy and "tough" weather conditions. The chain expects its business to remain soft during the second quarter before new, previously announced sales and merchandising initiatives gain traction in the back half of the year.

Separately, RadioShack has consolidated its product assortment into three broad segments: mobility, signature and CE. Mobility, the chain's primary growth engine, includes postpaid and prepaid wireless handsets, commissions, residual income, prepaid wireless airtime, e-readers, netbooks with embedded network capability and tablet computers.

Signature includes all accessories, general purpose and special purpose power products, technical products and services. RadioShack said it has established high consumer awareness as a destination for these products, and plans to reinvest in this segment through expanded assortments, enhanced in-store fixtures and displays, more targeted consumer outreach, and enhancements to store personnel incentive compensation plans.

The CE segment includes digital music players, personal computing products, laptop computers, cameras, residential telephones, home audio and TVs. RadioShack described these categories as "relatively mature," and will manage them "opportunistically" by selectively increasing or decreasing product assortments in relation to product sales trends and new product technology.

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