RadioShack Slashes Stores

RadioShack officials, speaking to financial analysts at the company's annual institutional investor conference last week, said that 2005 was a disappointing year in which the company did not meet its performance objectives. But the RadioShack execs said they have a plan for improving performance via the store closings and other strategic moves that they discussed during the presentation.

For the fourth quarter ended Dec. 31, the electronics retailer earned net income of $49.5 million or 36 cents per diluted share, versus net income of $130.9 million or 81 cents per diluted share for the quarter ended Dec. 31, 2004. Fourth quarter 2005 comparable store sales were up 4% versus the previous year and total sales in the fourth quarter rose 5% to $1.67 million.

For the full year, the company posted net income of $265.3 million or $1.78 per diluted share, compared with net income of $337.2 million or $2.08 per diluted share in fiscal year 2004. Fiscal year 2005 comparable store sales were up 1% and total sales in fiscal 2005 were up to $5.08 million versus $4.84 million in fiscal 2004.

"The poor fourth quarter performance caused us to take a much deeper look at the state of our business and resulted in the launch of a turnaround plan including the significant fourth quarter inventory write-down," said RadioShack president and CEO David Edmondson, who resigned yesterday due to an alleged misrepresentation about his college background. During the conference, he and other execs cited the full-year impact to net income from transition costs related to RadioShack's termination of its Verizon Wireless agreement, which cost $19 million due to inventory write-downs and labor. The vast majority of those costs were incurred in the fourth quarter.

RadioShack execs still believe that the company strategy is sound, according to Edmondson, but he said the retail chain "must move at a much faster pace with a greater sense of urgency," if it wants to turn around. He outlined three major goals for the company over the next 18 months: increase the average unit volume of its core store base; improve its cost structure; and better align overhead costs with its business model to generate more profit per sf of store space.

The company will replace old, slower-moving merchandise with new, faster-moving merchandise within higher growth categories. In addition to closing the 400 to 700 company-operated stores, it intends to close its distribution centers in Charleston, SC and in Southhaven, MS and will concentrate its efforts and investment on improving top-performing stores. Last, the company will continue to expand its kiosk business and aggressively relocate RadioShack stores to better real estate.

While the turnaround plan will be costly, Edmondson said "we are confident that the steps we are taking will put RadioShack back on the track to sustained profitable growth." RadioShack operates nearly 7,000 company and dealer stores, more than 100 locations in Mexico and more than 700 wireless kiosks.