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RadioShack Q4 Profits Fall 79%

Fort Worth, Texas – RadioShack’s fourth-quarter earnings slid
79.1 percent to $11.9 million on increased sales of low-margin iPhones,
declines in its core Sprint business, and the impact of a more promotional
holiday season.

Net sales and operating revenues rose 5.9 percent to $1.4 billion
for the three months, ended Dec. 31. The gains were largely fueled by the
opening of mobile departments in 646 additional Target stores, for a total of
1,496 locations.

Comp-store sales for company-operated RadioShack locations and
the Target Mobile centers increased 2.2 percent, due mainly to higher postpaid wireless
sales of AT&T and Verizon products and services. Tablets also contributed
to the comp sales gain, which was partially offset by a decline in Sprint and T-Mobile
postpaid wireless sales and lower sales of digital cameras and digital music

In a conference call, president/CEO Jim Gooch said “the dramatic
increase” in iPhone availability had a negative impact on margin mix year-over-year,
as Apple began providing the device to Verizon and Sprint. He maintained
however that iPhone purchasers are “still very profitable customers” when
accessories are attached.

RadioShack’s results were also slammed by Sprint’s decision to
drop its popular early upgrade program. The carrier, Gooch explained, accounts
for most of the chain’s mobile sales.

RadioShack was also disappointed by lower than expected returns
from its Target business. Start-up costs pressured profits, he said, and
RadioShack does not benefit from sales of accessories and prepaid phones and
plans at Target stores.

CE was another drag on earnings, said chief financial and
administrative officer Dorvin Lively, who reported a nearly 30-percent drop in
fourth-quarter CE sales. The category now represents less than 20 percent of
revenues but less than 10 percent of gross profit dollars, he said, and Gooch added
that the company plans to “de-risk our approach to CE by using it
opportunistically to drive traffic” and improve RadioShack’s perception as
price competitive.

Bright spots included large sales gains within its AT&T
business, “great success” in headphones, and solid growth in warranties and
tablet and wireless accessories.

Selling, general and administrative costs (SG&A) increased
$10.2 million during the quarter due to the hiring of additional employees to
staff the new Target Mobile centers. These higher expenses were partially
offset by lower incentive compensation and rent and occupancy costs, the
company said.

For the full year, net income fell 65 percent to $72.2 million,
net sales and operating revenues rose 2.6 percent to $4.4 billion, and comp
sales decreased 2.2 percent.

Gooch noted that the results are in line with the company’s Jan.
30 earnings pre-announcement, and that “despite our gross margin challenges, we
have a strong balance sheet, are making progress in our mobility business, and
expect to advance our business improvement initiatives in 2012.”

Those initiatives include improved hiring, training and sales
processes, a renewed focus on higher-margin private-label products, and a
mobile-specific marketing campaign that will span TV, print, direct and social

Nevertheless, Gooch projected continued earnings declines this
year, particularly in the first quarter, which will ease as the company balances
its Sprint and iPhone sales across its complete carrier and smartphone