RadioShack’s Q1 CE Sales Plummeted 24 Percent, Chain Says
Following a “disappointing” RadioShack $8 million loss for Q1, on sales of $1 billion, CEO Jim Gooch said in an analysts’ call Tuesday that the company is moving with a “great sense of urgency” to drive top-line growth, expand gross margin and “aggressively” reduce costs. The company will focus on “areas of opportunity” including “strengthening the value proposition” in the mobile segment, “reclaiming and maximizing” profit in its private-label signature business and improving product and service offerings, Gooch said. Net income for Q1 2011 was $35 million. RadioShack shares closed 10.6 percent lower Tuesday at $5.34.
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RadioShack saw a “very meaningful decline” in the Sprint business over Q1 2011 as a result of the carrier’s early upgrade program that went into effect in April 2011, Gooch said. Growth in Verizon and AT&T wireless business partially offset losses in Sprint business, and Verizon business, while “below initial expectations from last year,” has outpaced the loss of T-Mobile sales from last year, he said. It will “take time” to build consumer awareness and more fully develop the Verizon business, which the company took on last September, Gooch said. Consumers aren’t used to shopping for Verizon service through third-party resellers to the same extent as other carriers, he said.
The iPhone continues to drive traffic and sales and “higher than average” attach rates to high-margin accessories, Gooch said. Tablets are contributing to growth in the mobility segment, and RadioShack is now selling iPad in 1,500 stores, he said.
Target Mobile stores, operated by RadioShack in more than 1,490 Target stores nationwide, are still “very young,” and the companies are in the early stages of building consumer awareness at Target, Gooch said. Roughly 600 stores have been in operation for less than a year, he said. RadioShack has hired and trained a “significant number” of sales associates in the past year and has made changes to its operations model in response to traffic patterns and wireless sales in stores, he said. RadioShack is “not yet achieving the level of profitability we expected” from the relationship,” Gooch said. The company is working to improve performance through marketing in Target weekend circulars and adjusting in-store merchandising, operating hours and product assortment, he said.
Regarding the long-term viability of Target Mobile as a profit center for both companies and whether Target would be willing to rework the agreement in RadioShack’s favor, Gooch said that “both sides have been very willing to improve the operating performance of this business.” Gooch referred to “a lot of moving pieces” in the agreement -- including that RadioShack doesn’t benefit from the attach rate of high-margin accessories and the drop in wireless margins after the agreement was signed -- that “we might be able to put into this conversation to make it attractive for both sides.” Discussions are ongoing, and the companies may have more information to share later on, he said.
RadioShack’s CE business was down 24 percent as it continues to be battered by “difficult CE industry trends,” said Chief Financial Officer Dorvin Lively. CE accounted for less than 20 percent of consolidated revenue and less than 10 percent of gross profit dollars in 2011 -- a “small portion of overall business,” Lively said.
Overseas, RadioShack partnered with Berjaya Retail Berhad last month to open 1,000 franchise locations in Southeast Asia over the next 10 years in Singapore, Vietnam, Thailand and Malaysia, Lively noted. He said the first store will open this summer in Kuala Lumpur. RadioShack sees the opportunity for additional franchise agreements similar to the one with Berjaya, he said. In Mexico, RadioShack operates 225 company-owned stores, up 13 from last year, he said.
The strategy for RadioShack’s private-label signature business has become “somewhat stale and confusing,” Gooch said, and the company plans to refocus its private-label brands to better define the role of each product and brand. The plan will be completed in the second half, he said. Signature, which accounts for roughly 50 percent of RadioShack gross-profit dollars, was a “bright spot” for the company with improved sales continuing from Q4 into Q1, Gooch said. He attributed improved performance to a broader assortment of tablet accessories, headphones and wireless accessories, and to the warranty business, now offered either on a one-time payment plan or in monthly payments. RadioShack ended the quarter with 4,435 company-operated stores in the U.S., down 41 stores in the quarter, which was primarily a result of lease non-renewals in mall locations, Gooch said.