RadioShack 4Q Net Up 65% On Improved Margins
RadioShack on Tuesday posted a better-than-expected 65% increase in fourth-quarter profits, sending shares sharply higher amid signs the consumer electronics retailer's cost cuts are gaining traction.
RadioShack also said it expects 2007 earnings to increase between 85% and 122% as it continues to manage expenses aggressively while taking other steps to improve profitability. The earnings outlook, which would represent the first increase in about three years, topped Wall Street's forecast.
Shares recently traded up $3.49, or more than 15%, to $25.94.
The Fort Worth, Texas, consumer electronics retailer said net income rose to $84.5 million, or 62 cents a share, from $51.2 million, or 38 cents a share, a year earlier. Revenue fell to $1.46 billion from $1.67 billion a year earlier, hurt by lower same-store sales and the impact of closed stores.
Analysts, on average, had expected earnings of $54.2 million, or 43 cents a share, on revenue of $1.47 billion, according to Thomson Financial.
"We think there's a great deal more work to be done in 2007," said retail-turnaround specialist Julian Day, who joined RadioShack in July as chief executive, during his first conference call with analysts and investors.
RadioShack this year plans to focus on increasing gross profit dollars and managing expenses, among other things. For example, Day said, the retailer has more hands-on inventory management and will begin to shift from one national price for its products to "price groups," or varying prices based on geographic or demographic differences in a market.
Over the longer term, RadioShack intends to turn around sales by tailoring product assortments more closely to each store's particular market and by strengthening its wireless business. It has also taken steps to rejuvenate the flow of new and interesting products in its stores, Day said.
Fourth-quarter same-store sales fell 7.7% as a result of lower sales in post-paid wireless plans and phones and personal electronics. Excluding the impact of a reclassification related to the sale of prepaid wireless time, sales at stores open at least a year fell 5.5%. RadioShack said bright sales spots included MP3 players, accessories and prepaid wireless plans. Sales were in line with the company's January projection for a 7.8% decrease in same-store sales, or 5.5%, excluding the reclassification.
Store closings, reduced advertising expenses and lower payroll expenses helped selling, general and administration expenses drop $89.5 million to $482.8 million, or 33.1% of sales from 34.2% of sales a year earlier. RadioShack closed 505 company-operated stores, net of new store openings and relocations, during the year. It had 6,835 company and dealer locations on Dec. 31, down from 7,460 a year earlier.
Cash and cash equivalents more than doubled as of Dec. 31 to $472 million from $224 million, a larger increase than some analysts had expected.
"We have strengthened our balance sheet and cash position while enhancing profitability for the company," Day said in the company's earnings release. "This gives us greater flexibility as we develop our longer-term strategy."
The store closings and lower same-store sales meant fewer gross profit dollars, but gross margin improved to 45.6% from 41.1% as RadioShack did a better job managing inventory and promotional markdowns.
The electronics retailer launched a turnaround effort last February involving the closure of hundreds of stores and the replacement of slow-selling merchandise with better sellers. After a slowdown in the wireless phone business highlighted RadioShack's growing dependency on the category, it announced plans last year to close 450 to 700 stores, upgrade others, liquidate poor-selling merchandise and cut overhead. Turnaround costs totaled $44.6 million in 2006, the company said in a filing with the Securities and Exchange Commission.
RadioShack has nonetheless struggled for much of the past year because of increasing competition and falling sales and profit from cellphones, which account for one-third of its sales.
Looking ahead, RadioShack expects 2007 earnings of $1 to $1.20 a share, as the improvements felt during the fourth quarter are expected to drive increased profitability in 2007. The company didn't comment on revenue expectations. Analysts had expected, on average, earnings of 91 cents a share on $4.71 billion in revenue for 2007, according to Thomson Financial.
Day said in early January that first-quarter results would be hurt by a tough comparison with early 2006, when RadioShack received a lift from promotions for Cingular Wireless and clearances of holiday toys.
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033; maryellen.lloyd@dowjones.com
(Josee Rose and Anthony Buccino contributed to this report.)
(END) Dow Jones Newswires "
Posted to the site on 27th February 2007
