Consumer electronics retailer RadioShack reported better-than-expected first-quarter profit Monday as cost cuts helped offset weaker sales, and its shares shot up about 10%.
"Results reinforce our view that CEO Julian Day can raise profitability to surprising levels, and that there is in fact a place in the U.S. consumer world for a convenience-based retailer of technology solutions," Goldman Sachs analyst Matthew Fassler said in a research note.
Net income rose to $42.5 million, or 31 cents a share, from $8.4 million, or 6 cents a share, a year earlier. Excluding charges related to job cuts and other items, the company posted a profit of 29 cents, topping Wall Street's expectations of 13 cents a share, according to Reuters Estimates.
Selling, general and administrative expenses in the quarter dropped 16.9% to $412 million, as the company cut jobs, advertising spending and outside services in an ongoing effort to turn around its struggling business.
The company had $8.5 million in costs tied to cutting about 280 jobs mainly at its headquarters. RadioShack previously said the reduction in payroll and elimination of other open positions will yield $30 million a year in pretax savings.
Total sales fell 14.5% to $992 million in the quarter. Same-store sales -- a key measure that tracks sales in stores open at least a year -- dropped 9.2%. Both declines were due to weaker wireless sales, while overall sales were also hit by fewer company-operated stores and kiosks -- down 506 from last year.
Gross profit in the first quarter improved to 52% of sales compared with 48.3% a year earlier, helped by better inventory management. Cash balance totaled $463 million at the end of the quarter, markedly up from $45 million a year before.
RadioShack, based in Fort Worth, Texas, has been working to stabilize its business by closing unprofitable stores and reducing headcount since Day, a turnaround veteran, became CEO last year.
But more will need to be done to sustain profit levels, Lehman Brothers analyst Alan Rifkin said in a research note.
"While cost-cutting efforts appear to be gaining traction, we await evidence of top-line improvement, which we believe is key to driving sustainability of the company's model," he wrote, maintaining his "underweight" rating on the stock.
The company had previously forecast fiscal 2007 earnings between $1.00 and $1.20 a share, versus analysts' average forecast of $1.16, according to Reuters Estimates. It kept that forecast unchanged.
"We believe there is ample room over the next two quarters to generate solid earnings growth, with even greater upside from share repurchases, even if weak sales trends persist," Credit Suisse analyst Gary Balter said in a research note.
The shares were up $2.69, or 9.7%, to $30.41 in morning New York Stock Exchange trading. So far this year, the shares have risen 81%.