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RadioShack Warns Sprint, Q4 Promos Hurt Earnings

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.