RadioShack Q4 Sales Drop; Begins ‘Turnaround Plan’

RadioShack Corporation has begun what it’s calling a turnaround plan to stimulate growth because of poor fourth quarter 2005 performance. It reported net income of $49.5 million for Q4 2005. That compares to $130.9 million for Q4 2004 – a 62% decline.
It intends to replace old, slower-moving merchandise with new, faster-moving merchandise within higher growth categories and close 400-700 company-operated stores out of nearly 7,000 total stores. In addition, the company intends to better align overhead costs with its business model to help generate more profit per square foot, expand its kiosk business and relocate RadioShack stores to better real estate.
Fourth quarter 2005 comparable store sales were up 4% versus the prior year. Total sales in the fourth quarter of 2005 were up 5% to $1,672 million, compared to total sales of $1,593 million for the previous year.
However fourth quarter 2005 gross margin rate was 41.1% versus 49.3% the previous year. The decline was driven primarily by the write-down of $62 million in inventory as well as a merchandise mix shift and more promotional activity versus the prior period.
Sales were good in many low-margin non-wireless categories; however, sales dropped in high-margin categories and wireless sales and profits were below expectations, said David Edmondson, president and chief executive officer.
For fiscal year 2005, RadioShack reported net income of $265 million versus net income of $337 million in fiscal year 2004 – a 21% drop in net income, partly due to RadioShack’s termination of its Verizon Wireless agreement at $19 million due to inventory write-downs and labor. The vast majority of costs were incurred in the fourth quarter.
Although the company say a 5% increase in total store sales for the year, at approximately $5 million, it missed its goal and has made changes in management,
advertising, store operations, merchandise assortment and long-term wireless agreements.