Sprint Struggles Persist at RadioShack, Chain Says
RadioShack closed 33 company and franchised stores in Q1 amid continuing weak Sprint Nextel wireless sales, the chain said Monday in an SEC filing. RadioShack also carries AT&T Wireless but has no access to Apple’s iPhone. Sprint marks the larger share of a wireless business that accounted for a third of the retailer’s $4.25 billion in total 2007 revenue.
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RadioShack didn’t disclose Q1 wireless sales but said a rise in AT&T-related revenue was offset by a drop in Sprint business “across the market.” RadioShack posted 0.7 percent growth in wireless platform revenue, driven partly by sales of GPS devices and cellphones. In addition to its own stores, RadioShack sells wireless through 739 kiosks at Sam’s Club outlets and runs an unspecified number of additional stands for Sprint. Kiosk-related revenue fell to $69.2 million from $77.3 million a year ago, when RadioShack had 763 kiosks.
The wireless rise was offset by a 16.5 percent drop in sales of “modern home” products, such as residential phones, satellite systems and AV gear, the company said. A downturn in flat-panel TV sales was countered by a rise in revenue from notebook PCs, wireless headphones and flash drives, the chain said. RadioShack moved to cut “unproductive and unprofitable” large flat-panel TVs from stock, resulting in fewer stores carrying an “expanded assortment” (CED Feb 27 p4).
RadioShack shut 17 company-owned outlets in Q1, shrinking to 4,430 stores from 4,447 at year-end. Its franchised-store network retracted to 1,468 stores from 1,484. In May, RadioShack is expected to shut a 260,000- square-foot Grovesport, Ohio, distribution center, cutting 69 jobs (CED Jan 17 p7). The facility includes a RadioShack clearance center.
RadioShack Q1 profit fell to $38.8 million from $42.5 million a year earlier, as gross margin shrank to 47.4 percent from 49.9 percent due to “aggressive pricing” needed to compete. RadioShack earnings benefited in the earlier period from a $14 million refund of federal telecommunication excise taxes. The refund raised gross margin 1.4 percent last year. RadioShack Q1 selling, general and administrative costs fell to $362.4 million from $393.6 million. RadioShack took an $8.5 million charge against Q1 earnings last year as it trimmed 260 jobs at its headquarters.
Q1 revenue fell to $949 million from $992.3 million a year ago on a 4 percent drop in same-store sales. Sales at company-owned stores fell to $817.4 million from $848.4 million as operating income fell to $151.3 million from $178.1 million. Operating income at RadioShack’s kiosk business slid to $1.8 million from $4.6 million as sales fell to $69.2 million from $77.3 million. Other revenue, including e-commerce and a Mexican joint venture with Grupo Gigante, fell to $62.4 million from $66.6 million, with operating income flat at $8.9 million. The venture has 176 stores and 17 dealers in Mexico, RadioShack has said.
It “appears likely” the California Supreme Court will review and “add clarity to the standard of liability applicable” to state wage and hour law on meal periods, said RadioShack. The court this year rejected RadioShack’s petition for review of a lower court ruling (CED Feb 27 p5). In 2006, a superior-court judge certified as a class action a suit alleging that the chain violated state wage and hour law. The class has about 23,000 members.
In another case, RadioShack said it has made $8.8 million in settlement payments stemming from a 2002 suit alleging that the chain wrongly classified managers as overtime-exempt, a breach of the federal Fair Labor Standards Act. RadioShack agreed to make payments last fall to 3,300 class managers including lead plaintiffs Alphonse Perez and Douglas Philips. U.S. District Judge Rebecca Pallmeyer found in 2005 that some managers at RadioShack’s so-called Y stores -- whose annual sales exceeded $500,000 -- were misclassified as exempt from a provision requiring overtime for work beyond a 40-hour week (CED Sept 19/05 p3). RadioShack recorded an $8.5 million pretax expense a year later to cover a preliminary settlement (CED July 24/06 p5).
The landlords of 15 former CompUSA locations are seeking payments from RadioShack, the chain said. Lawsuits followed four letters sent by owners requesting money, RadioShack said. RadioShack’s lease obligations stem from sale of Computer City to CompUSA in 1998. CompUSA closed its remaining 126 stores late last year, although 16 have been acquired and reopened by Systemax.