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Cell Sales Carry RadioShack

Fort Worth, Texas — Strong wireless sales, which soared 28 percent in the first three months of 2004, carried RadioShack to a 2 percent first quarter increase in overall sales, hitting $1.09 billion, up from $1.07 billion in the year-ago period.

RadioShack’s net income in the first three months, ended March 31, reached $68 million, compared with $57 million in the same period a year ago. Comp-store sales, which sequentially climbed upward each month of the quarter, rose 3 percent overall, compared with the first quarter of 2003.

“We continue to build upon our position of strength in wireless,” said Len Roberts, chairman/CEO, “and are taking action to improve results in our other businesses.” Roberts noted the company’s strong sales of wireless products and services in the first quarter did combine with favorable profitability trends company-wide to positively impact the retail chain’s bottom line.

In a conference call held after the release of the earnings results, Chief Financial Officer Mike Newman described the chain’s wireless performance as “impressive as hell.” President/Chief Operating Officer Dave Edmondson attributed the gains to a “disproportionate amount” of RadioShack advertising devoted to the category, and consumer upgrades to camera phones, which now account for 50 percent of company sales. He also pointed to gains due to the industry leadership of RadioShack’s Sprint and Verizon partners and the retailer’s growing share of their sales, and anticipated “confusion” following Cingular’s acquisition of AT&T Wireless.

Along with increased sales in its wireless communications department, RadioShack said gross profit dollars increased in five of it seven departments.

Across the board, gross margin jumped by over 1.3 percentage points in the quarter to 50.6 percent, while the retailer leveraged expenses as a percent of sales by over one-third of a percentage point. Expenses increased by 1.3 percent in the first three months year-on-year.

Newman attributed the margin gains — and some lost sales volume — to RadioShack’s exit from the DirecTV, installation and promotional toy businesses, and the removal of PCs from some of its stores, which were replaced in part by more profitable sales of DISH satellite systems and subscriptions and digital cameras.

Inventory turnover for the for the trailing four quarters, ended in March, was 2.8 times, compared with 2.6 times in the same period a year earlier.

Looking ahead, RadioShack anticipates annual sales growth of 3 percent to 4 percent, with gross margin gains of one-half percent to nearly 3/4 percent, and expense growth of 1.5 percent to 2.5 percent.

To meet those expectations, Roberts acknowledged the company is “focused on the need to drive traffic.” This will be accomplished by emphasizing promotions over brands in its advertising circulars — including buy two-get two offers on 9V batteries and a buy two-get one deal on original ZipZap radio controlled toys — and by introducing new proprietary products, such as a forthcoming camera/camcorder/digital voice recorder combo unit.

Also expected to spur sales is a forthcoming series of store retrofits, including a special fixture for RadioShack’s proprietary voltage products, a new “imaging zone” located near entranceways that’s designed to engage consumers and extend their time in the stores, and the reset of the former RCA product wall. RadioShack plans to re-merchandise the former Thomson-dedicated space with new home entertainment products from Sony, Samsung, Panasonic and Onkyo, and with existing SKUs that will be consolidated from other areas of the store.

Edmondson said the RCA wall resets will take a day and a half per store to complete, with minimal distraction to staff and customers, and that all 5,200 locations should be upgraded by the third week of July.

Roberts noted the company is also moving its personal CE assortment out from behind counters and will now put its ink, flash memory and general-use battery SKUs under glass.

Elsewhere, Newman noted that a May 21 court date has been set in which RadioShack will attempt to block the use of its brand name by Canadian licensee Intertan following its sale to Circuit City, although the parties will engage in mediation prior to their appearance.

Newman said any financial impact of the Intertan deal would be negligible to RadioShack, and that Intertan is not allowed to use the RadioShack brand name outside of Canada. — Additional reporting by Alan Wolf