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Earnings Strong But Sales Slump For RadioShack

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

Net income for the full year, ended Dec. 31, 2007, 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 prepaid 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 vs. 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.