RadioShack Sales Up 8% In Q3; iPod Added To Assortment - Twice

RadioShack Sales Up 8% In Q3; iPod Added To Assortment

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Wireless sales through kiosks jumped 15 percent at RadioShack during the third quarter, helping the retailer post an overall 8 percent sales gain to $1.2 billion for the three months, ended Sept. 30.

But brisk volume through RadioShack's freestanding wireless kiosk channel was offset by a 5 percent decline in wireless sales in company stores, contributing to a more modest 1 percent gain in comparable-store sales for the period.

Non-wireless sale rose 5 percent in the third quarter, including an 18 percent gain in personal electronics such as MP3 players, digital imaging, satellite radio and certain toys. Services, including prepaid air time, increased 35 percent.

RadioShack said it plans to drive comp sales the remainder of the year through improved store operations, better merchandising, a new advertising campaign, more wireless kiosks and better run and inventoried stores.

The company has also begun carrying Apple's iPod line for the first time and is adding 8-foot-long merchandising displays to support the assortment. The move is part of new effort to promote national brands at the chain's mall-based stores, where sales continue to trail its off-mall locations. RadioShack is also cutting SKUs and reducing clutter at its mall stores to improve the shopping experience.

Third-quarter operating income at RadioShack dropped to $88.9 million, from $117.2 million, while net income jumped 56 percent to $108.5 million year-over-year, buoyed by a non-cash, non-recurring gain of $56.5 million due to the reversal of a tax contingency reserve.

Gross margin declined 3 percentage points, to 47.6 percent, primarily due to an aggressive inventory clearance sale, inventory markdowns and lower gross margins in non-core channels.

In a conference call, chief financial officer David Barnes said the two-month clearance sale resulted in a $14 million write-down. Despite the clearance event, RadioShack reported higher inventory levels year-over-year due to slower sales, the greater number of kiosks it is supplying, the additional wireless product it must carry as the chain transitions from Verizon to Cingular service on Jan. 1, 2006, and a larger fourth-quarter buildup than last year.

“We made important progress during the third quarter to better position ourselves for the holiday selling season and the long term,” said Dave Edmondson, president/CEO.

Barnes said wireless gains were countered by lower average selling prices, the absence of sales incentive bonuses from wireless carriers, and increasing consumer preference for prepaid plans, which deliver lower margins.

Edmondson said the company will focus on four “hot categories” to drive traffic and accessory sales during the holiday period: satellite radio, MP3 players, wireless and digital imaging.

“Our outlook reflects accelerated comp-store sales driven primarily by rapidly growing categories, which tend to carry lower gross margins than the company average,” he said.

Sales efforts will be supported by a new ad campaign that breaks this month, plus the implementation of new, more efficient store operating procedures that match labor to traffic patterns. The new procedures have so far yielded higher conversion rates, Edmondson noted.

Also, the company continues to convert its store base to its newest retail format, with 17 percent of locations now retrofitted. Fewer kiosks will be deployed in the coming months compared with last year, however, when over 500 were launched in the fourth quarter alone.

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