RadioShack Warns Sprint, Q4 Promos Hurt Earnings

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Fort Worth, Texas - RadioShack says its preliminary fourth quarter earnings show "significant declines" due to its Sprint wireless business and an overly promotional holiday season.

In a statement issued late Monday the chain said its gross profit margin is also expected to fall amid growth in the low-margin tablet, e-reader and, ostensibly, iPhone categories.

RadioShack expects to report final, audited 2011 fourth-quarter and full-year financial results on Feb. 21.

Preliminary, unaudited results for the three months, ended Dec. 31, show diluted earnings per share to be in the range of $0.11 to $0.13, compared with $0.51 per diluted share reported for the prior-year quarter.

The chain attributed the decline in large part to the underperformance of its postpaid Sprint business and "further unanticipated changes in the carrier's customer and credit models." The changes resulted in fewer new and upgrade activations and a decline in Sprint postpaid revenues, RadioShack said.

The profit shortfalls also reflect a highly promotional holiday season and ongoing pressures on consumer spending, RadioShack reported.

Gross profit margin is expected to be about 35 percent, compared with 41 percent in the prior-year period, due to a shift in mobile product towards tablets, e-readers and certain lower margin smartphones; a higher percentage of mobility sales in the overall revenue mix, largely driven by the expansion of Target's RadioShack-operated mobile business; and the impact of a more promotional holiday season.

Total net sales and operating revenues from continuing operations increased about 6 percent to $1.4 billion, and comp-store sales for company-operated locations increased about 2 percent.

In a statement, president/CEO Jim Gooch said "significant declines" in the company's Sprint business overshadowed sales growth in new "iconic" handsets, incremental gains from new carrier partner Verizon Wireless; higher revenues from AT&T; and increased sales of tablets and e-readers.

"We recognize that certain smartphones and other mobile devices, mainly tablets and e-readers, are a growing mainstay of consumer electronics purchases, and are significantly changing the margin profile of our mobility business," Gooch noted.

To that end, RadioShack is lowering its earnings outlook for 2012, assuming the Sprint business remains at its current run rate, with "very challenging comparisons in the first quarter and sequential quarterly improvement in the remainder of the year," he said.

The company has also decided to suspend share repurchases for the near term, and instead will continue to reinvest in its stores and website. Other key initiatives will include strengthening its relationships with its wireless carrier partners as it grows its mobility business, and optimizing its overall selling and merchandising strategy, Gooch said.

Broken out by category, mobility sales at company-operated U.S. RadioShack stores increased about 16 percent; signature sales, comprised of  headphones, wireless and tablet accessories, warranty services and technical products, declined about 1 percent, representing "a significant improvement" over the preceding quarter; and CE sales declined about 30 percent, reflecting continued product cycle declines, the chain said.


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