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RadioShack Q2 Sales Rise 3%, Net Climbs

Fort Worth, Texas – Striking what it called a ‘prudent balance between sales and profitability,’ RadioShack reported a 3 percent sales increase in the second quarter, hitting $1 billion, up from $998.1 million in the year-ago three months. Comp-store sales also increased 3 percent year-on-year in the second quarter.

‘Strong sales in the wireless and toy departments, combined with excellent profitability improvement in the computer and power-technical departments, made for very respectable financial results,’ said Leonard Roberts, chairman/CEO.

RadioShack reported that wireless communications department sales for the second quarter soared 14 percent, compared with the previous year’s second three months, attributable in part to the popularity of Sanyo’s 8100 handset with built-in digital camera from Sprint.

The retailer noted a 10 percent sales increase in personal electronics and toys in the quarter, while home entertainment was off 12 percent, mainly due to weakness in home audio and category accessories. Second quarter sales of computer, home networking and wireless accessories were solid, as were sales of batteries.

The retailer said improvement came in the size of its average sales ticket rather than increased store traffic, with the average sale growing 4 percent, to $29.77. Helping to boost the average ticket were price increases in a number of categories including wireless, batteries, home networking and landline phones.

RadioShack net income in the second quarter, ended June 30, jumped to $57.5 million, up from $51.8 million in the same period in 2002. In the 2002 second quarter, the retailer recorded adjusted net income of $53.2 million, due to the effect of two litigation settlements. At the same time, second quarter gross margin dropped 30 basis points, to 50.8 percent, year over year.

In the six months, overall RadioShack sales made a small gain, to $2.1 billion, compared with $2.0 billion in the first half of 2002. Net income for the period increased to $114.1 million, up from $109.4 million in the same six months last year.

Looking ahead, RadioShack anticipates a 15 percent increase in full-year earnings, higher than previously expected. Full-year assumptions for the retailer to hit this earnings target include a 3.5 percent to 4 percent growth in sales, and wireless communications department growth notably higher than earlier estimates of 3 percent to 4 percent.

The estimate for wireless is based on anticipation of new product introductions and the advent of phone number portability in November. Roberts said that upwards of 90 percent of potential service conversions are kaboshed by the inability of consumers to keep their phone numbers.

‘It’s a complex transaction,’ Roberts noted. ‘We excel at it, but it’s hard for other retailers.’

Also for the 12 months, the retailer anticipates that, collectively, the decline in home entertainment, wired communications and radio communications departments will be more pronounced than earlier expectations of ‘down slightly to flat.’

RadioShack is looking for gross margin improvement of zero to 20 basis points for the year, along with selling, general and administrative growth of 3.5 percent to 4 percent.

On the product front, president/COO Dave Edmondson noted that more floor space will be devoted to video products and accessories, while big screen TVs and audio will be de-emphasized due to their low margins and RadioShack’s lack of a competitive advantage in those areas.

‘Video drives the home entertainment accessories business more than audio does,’ Edmondson observed, and ‘stand-alone audio won’t fare well for years to come.’

Chief financial officer/senior VP Michael Newman said RadioShack will close 85 to 125 company-owned stores this year, and will open between 60 and 70 new units. Fifty of the new stores will be Best to Shop concept stores, which are currently being tested in Tucson, Ariz. and Jacksonville, Fla. Some 72 of the next-generation stores are currently in operation, and RadioShack’s target is to open 250 of the prototypes, he said.

 — Additional reporting by Alan Wolf