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RadioShack Reports Strong Earnings

Fort Worth, Texas – Lower expenses, improved inventory management and a more effective promotional spend helped RadioShack’s profits rebound sharply in 2007, the company reported today. Sales however suffered due to weakness in its Sprint wireless and flat panel TV businesses.

Net income for the full year ended Dec. 31 was up 222.6 percent to $236.8 million, while net sales were down 10.6 percent to $4.3 billion. The company attributed the sales decline to an 8.2 percent drop in same store sales and, to a lesser extent, a diminished store count compared to 2006.

For the fourth quarter ended Dec. 31 net income rose nearly 20 percent to $101 million while net sales were down 6.6 percent to $1.4 billion. RadioShack attributed the earnings increase to improved gross margin, lower overhead and reduced interest expense, and attributed the sales decline to a 6.7 percent drop in same store sales.

Comps were impacted by lower sales in postpaid wireless, particularly Sprint; flat panel TV; and satellite radio, the company said, but were partially offset by strong sales within the GPS, video gaming, media storage and pre-paid wireless categories.

Fourth quarter operating income was up 11.2 percent to $165.2 million, driven by lower operating expenses, which were partially offset by fewer gross profit dollars. RadioShack cut fourth quarter expenses by $40 million versus the prior year by cutting jobs at headquarters and through more efficient labor scheduling at the store level. The decline in gross profit dollars was due to the decrease in same store sales, partially offset by a 90-basis point improvement in gross margin rate, the company said. The gross margin gains were driven by improved inventory management and more effective promotional activities, but were partially offset by an unfavorable merchandise sales mix, due to the strong performance of the low-margin GPS, media storage and video gaming categories.

“I am delighted to announce that our team here at RadioShack once again produced strong improvement in our operating profit for the fourth quarter and for the year as a whole” said RadioShack chairman/CEO Julian Day. “It is a testament to the hard work and devotion of everyone concerned, that this result was achieved against a background of difficult and uncertain economic conditions.”

In a conference call with analysts earlier this morning, CFO James Gooch said that RadioShack’s Sprint postpaid wireless and accessories business accounted for 80 percent of the company’s fourth quarter sales decline, while flat panel TV represented 20 percent of the shortfall. By contrast, GPS showed “strong triple-digit growth” and media storage enjoyed “strong double-digit growth,” he said.

Going forward, the company plans to de-emphasize flat panel and bulk up on its GPS, gaming and private label businesses, executives said.