R'Shack's Q2 Profits Up Despite Slower Sales

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Fort Worth, Texas - Continued cost-cutting at RadioShack and easy year-ago comparisons helped boost the CE chain's second-quarter profits despite a slowdown in sales.

Net income rose nearly 18 percent to $48.8 million for the three months, ended June 30, while net sales slipped 2.9 percent to $965.7 million and same-store sales fell 4 percent.

Income was aided by reduced advertising and compensation, which lowered selling, general and administrative (SG&A) from 37.7 percent of sales to 34.8 percent of sales year over year.

Results were also boosted by leaner inventory - down $48.1 million to $578.2 million - and a one-time year-ago charge of $4.3 million related to the lease of RadioShack's corporate headquarters.

Weaker sales of wireless accessories, digital-to-analog converter boxes, GPS products, music players and digital cameras contributed to the comp-sales decline, and were partially offset by increased sales of netbooks, TV antennas, prepaid wireless handsets and airtime, TVs and VoIP products, the chain said.

But the shift in sales mix toward lower-margin products like TVs and netbooks lowered its gross margin rate by 110 basis points.

Broken out by sales channel, revenue at company-owned stores fell 4.6 percent, sales at dealer-owned stores fell 16.2 percent, and kiosk sales slipped 3.2 percent due to a decrease in the number of Sprint and Sam's club kiosks.

The declines were partially offset by a 24 percent increase in online sales and gains from the company's Mexican operations.

Capital expenditures for the first half of 2009 totaled $43.9 million, and projections for the full year are in the range of $75 million to $100 million.

In a statement, executive VP and chief financial officer Jim Gooch said, "We are very pleased with the results we reported today, especially considering the very challenging economic times. Our disciplined approach to operating the company resulted in the strengthening of our balance sheet and significant increase in operating income during the second quarter."

Operating income rose 12 percent to $87.7 million after adjusting for the one-time lease charge and a state sales tax settlement.

Chairman/CEO Julian Day added that last week's announced addition of T-Mobile to the company's carrier roster "strengthens our ongoing efforts to offer consumers a greater range of choices in the mobility space and will allow us to continue to bring innovative devices and services to the marketplace."

He also cited RadioShack's recently announced partnership with cyclist Lance Armstrong as "an important vehicle for continuing to build our brand."


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