UPDATE: RadioShack 1Q Net Aided By Converter Box Sales
24 April 2009 - 2:22AM
Dow Jones News
While a surge in sales of digital TV converter boxes fueled a
comeback for RadioShack Corp.'s (RSH) first-quarter results and its
shares Thursday, Wall Street's key concern remains how the gadgets
retailer will keep the momentum going.
RadioShack reported encouraging signs in its wireless phone
business during the quarter but didn't say what exactly led to the
improvement. Excluding converter boxes and mobile phones,
RadioShack's sales continued to decline, and the benefit from
converter boxes will wane after the June 12 deadline for
broadcasters to switch from analog to digital signals.
"Unlike other turnaround names, RSH seems to be positioned to
survive in the near term, and a solid balance sheet is a big plus
in this market," Credit Suisse analyst Gary Balter said in a note
to clients. "Yet it does not change what remains a tough growth
story over time, as the company searches for its next sales
driver."
The Fort Worth, Texas, company posted a better-than-expected 11%
increase in net income, aided by $70 million in converter-box sales
- more than double some industry analysts' estimates - and by the
resulting leverage on fixed expenses. RadioShack generated $200
million sales from converter boxes in all of 2008.
Net income was $43.1 million, or 34 cents a share, compared with
$38.8 million, or 30 cents a share, a year earlier.
Revenue increased 5.6% to $1 billion as same-store sales climbed
5% at company-operated stores and kiosks. Dealer sales fell, but
online sales jumped 28%. RadioShack said same-store sales would
have been 6.2% absent an extra day a year earlier.
The mean estimates of analysts surveyed by Thomson Reuters were
earnings of 22 cents and revenue of $937 million.
"We are very pleased with the results," said Chairman and Chief
Executive Julian Day.
RadioShack shares recently traded up 10.7% to $11.96.
Day said in a news release that post-paid wireless sales were
strong, but the company doesn't hold a conference call to discuss
results and company officials didn't immediately respond to a
request for comment.
Smartphone sales in the industry have been surprisingly strong
given the economic backdrop, which may have helped RadioShack,
Hudson Square analyst Scott Tilghman said. RadioShack's main
wireless partners are AT&T Corp. (T) and Sprint Nextel Corp.
(S), but the retailer does not carry Apple's (AAPL) iPhone, which
boosted AT&T's wireless results reported Wednesday.
"We think the company's getting a little bit of a one-time boost
from the converter-box traffic" in its stores, Tilghman said. "I
don't think that will necessarily keep that customer as a
RadioShack customer longer term."
He also suspects sales of flat-panel TVs and other items at
RadioShack may have been helped by an industry-wide boost in
interest in electronics tied to Circuit City's store liquidations,
which ended March 8.
Excluding the converter box sales, RadioShack's same-store sales
would have been down again, Tilghman noted.
Still, the latest results improved on a weak fourth quarter,
when net income dropped a bigger-than-expected 39% as consumers
shifted away from big-ticket purchases. Same-store sales in the
fourth quarter fell 9.2%.
RadioShack has been seeking a way to be relevant as companies
such as Best Buy Co. (BBY) and Wal-Mart Stores Inc. (WMT) take
increasing market share on the consumer-electronics space. The
company last year performed minor renovations on most company-owned
stores and has taken such steps as adding an electronics trade-in
program in those locations.
Gross margin in the latest period fell to 46.7% from 47.4%,
pressured by the lower-margin converter boxes. But operating
margins rose to 8% from 6.8% - the highest figure in four year - as
overhead costs held steady despite the sales gains.
Cash levels were more than double year-earlier levels as of
March 31 while inventories dropped 13%.
(Kevin Kingsbury contributed to this report.)
-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145;
maryellen.lloyd@dowjones.com