RadioShack Shares Tumble on Weaker-Than-Expected Sales

Consumer electronics retailer RadioShack reported a better-than-expected second-quarter profit Monday, helped by its cost-cutting efforts. However, investors were disappointed by weak sales, which fell short of estimates.

RadioShack shares fell about 13%.

"The sales performance continues to be weak," said Tiffany Co, a director in the retail group with Fitch Ratings. She said declining sales would eventually cut into profitability.

Sales fell 15 percent to $934.8 million, short of analysts' estimates of $983.6 million. Sales at stores open at least a year, a key measure of retail performance, dropped 8.9 percent. RadioShack cited weaker wireless sales and the closure of 481 stores in 2006.

"The wireless business is actually doing very well in general for the wireless carriers" such as Cingular, Fitch's Co said. "RadioShack can't seem to attract the customers into the stores to sign up."

Earnings came to $47 million, or 34 cents a share, compared with a year-earlier loss of $3 million, or 2 cents.

Adjusted for a $10 million reversal of an income tax reserve, profit in the latest period was 29 cents a share, higher than the 25 cents analysts expected, according to Reuters Estimates.

RadioShack has been working to stabilize its business by closing unprofitable stores and reducing headcount since Julian Day, a turnaround veteran, became chief executive last year.

Selling, general and administrative expenses fell 22 percent as the company kept costs for payroll, professional fees and advertising moderate.

Gross profit improved to 50.5 percent of sales from 47.2 percent a year earlier, helped by better inventory management. The Fort Worth, Texas-based company's cash balance totaled $630 million at the end of the quarter, up by $460 million from a year earlier.

Day, who had previously worked at Kmart and Sears, Roebuck, said in a statement that the improved gross margin rate in the quarter reflected efforts to refreshen merchandise and increase offerings of "value-added" products.

The company's shares were off $2.52, or 8.8 percent, to $26.28 in morning New York Stock Exchange trading after falling to $24.63. So far this year, the shares have risen 48 percent.