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Cost-Cutting Pays Off for RadioShack

RadioShack Tuesday posted a 19.5 percent increase in fourth-quarter profit that beat Wall Street estimates, due to cost-cutting and better gross margins, sending its stock up 18 percent.

The consumer electronics retailer, which faces intense competition from Best Buy Co and other chains, said net income rose to $101 million, or 77 cents a share, from $84.5 million, or 62 cents a share, a year earlier.

Sales declined for the sixth quarter in a row, sliding to $1.36 billion from $1.46 billion. Analysts on average had expected a profit of 72 cents a share on revenue of $1.35 billion, according to Reuters Estimates.

RadioShack has been closing unprofitable stores and reducing staff since Julian Day, a turnaround veteran, became chief executive in 2006. But weakening sales have raised concern in a slowing environment for consumer spending.

Credit Suisse analyst Gary Balter said he was optimistic about the company's outlook despite myriad challenges, including the fact that Radio Shack "lacks access to hot products and is gradually losing its relevance, and its core business in wireless is a category that continues to decline."

"In that context, the company put up a superb fourth quarter, and we believe CEO Julian Day deserves credit for positioning the company to deliver strong earnings in such a challenging retail environment," he said in a client note.

RadioShack said that fourth-quarter selling, general and administrative expenses fell $39.8 million as the company reduced headquarters staff and scheduled labor more efficiently at its stores.

Gross margins rose to 44.8 percent, from 43.9 last year, aided by improved management of inventory. Sales declines for wireless services -- specifically from Sprint -- and satellite radios offset gains for navigation units and video gaming systems. Sales at stores open at least a year, or comparable-store sales, fell 6.7 percent.

"Suffice it to say for now that our sales of Sprint handsets, plans and related accessories, while in line with Sprint's reported results, were very disappointing to us throughout the year..." Day said on a conference call with analysts.

Day said that for 2008, sales and margin improvements will likely drive earnings improvements, more so than cost control. It also plans to expand its video games offerings and look for better performance from AT&T wireless products and services.

Shares of RadioShack jumped to $18.57, up $2.83, in morning trade on the New York Stock Exchange after rising earlier to $19, its highest level since early December.