RadioShack to close up to 700 stores

[Dr. Jack]

NEW YORK (Reuters) - RadioShack Corp. (NYSE:RSH - news), whose chief executive has admitted to lying on his resume, on Friday said quarterly profit fell 62 percent after a switch in wireless providers led to an inventory write-down, sending its shares to a nearly three-year low.

The consumer electronics retailer, which said it was hiring legal counsel to investigate the admission by CEO David Edmondson, also announced a new turnaround plan that includes closing 400 to 700 company-operated stores and liquidating slow-moving inventory.

The company said it was "unwise" to issue earnings forecasts for 2006 given the uncertainty of the turnaround plan, which could cost up to $100 million.

"We have been very cautious on (RadioShack's) ability to execute the wireless transition smoothly and are skeptical on the just-announced turnaround," Lehman Bros. analyst Alan Rifkin said in a note. "We would not be owners of (the) shares at this time."

RadioShack shares were down $1.61, or 7.8 percent, at $19.14 in afternoon
New York Stock Exchange trading after touching as low as $19.02.

FALLING EARNINGS

Fourth-quarter earnings fell to $49.5 million, or 36 cents per share, from $130.9 million, or 81 cents per share, a year earlier.

According to Reuters Estimates, excluding 22 cents per share for the inventory write-down and a 2-cent charge for an accounting change, profit would have been 60 cents, which compares with the analysts' average forecast of 66 cents.

Sales rose 5 percent to $1.67 billion, compared with analysts' target of $1.62 billion.

The results come two days after Edmondson admitted that he lied about his academic record on his resume and on the company's Web site. The discrepancy was first reported earlier this week by the Fort Worth Star-Telegram.

At an investor conference, Edmondson began by apologizing for any embarrassment the situation caused and said the issue was now in the hands of the board.

As for the quarterly results, Edmondson said sales were "good" in low-margin nonwireless categories like MP3 players, but were weak in high-margin categories, like batteries. Sales of wireless products, a key profit driver, were below targets.

Last year, RadioShack said it would switch phone carrier partners to try to revive its wireless sales. It agreed to sell Cingular Wireless phones and cut ties with long-time ally Verizon Wireless. It also signed a new 11-year deal with Sprint Nextel Corp. (NYSE:S - news).

But the transition, which took place at the end of the year, turned out to be more difficult than expected.

On Friday, RadioShack said it took an inventory write-down of $62 million in the quarter, and it is replacing old, slower-moving merchandise like speaker wire and outdoor antennas with new, faster-moving items

"Our business model for many years has been based on high- margin, slow-moving products," Edmondson said during an investor presentation. "These products are taking up valuable space in the store that can be much more efficiently utilized."

RadioShack said it would liquidate some products, take "aggressive" mark-downs on others and let some stay on store shelves until they sell out. It will continue to sell some of the products on its Web site, though not in the stores.

The company also expects to add about 200 kiosks in 2006, relocate some stores to better sites, and close two distribution centers.

RadioShack, which has 7,000 company-owned and dealer stores, estimated it would incur costs of $55 million to $100 million on the inventory write-downs and store closures in 2006, although it may take some of the costs in 2007, depending on when it closes the stores.

"While the execution of the turnaround plan will trigger the recognition of significant costs," Edmondson said, "we are confident that the steps we are taking will put RadioShack back on the track to sustained profitable growth."

[ZIGGYSTARDUST]

The mere fact that they still carried outdoor antennas on the floor says volumes about their "finger on the pulse " marketing acumen. I was always Amazed they were able to keep the doors open ! I think I was in the 7th grade(and I am old) the last time I was in one!

[cman]

I used to think the store was really cool...you would actually see electronical gadgets you could not find anywhere else...but when I went in one about a year ago I asked the salesman what new and launched into his cell phone pitch...and I stopped him and said so..cell phones are new...left a few min later

wde

[GTM 2.0]

I personally think it's a major benefit to the consumer. Their products are/were sub-standard when compared with similar devices from varying manufacturers, and over-priced to boot.........they charged my PC illiterate neighbor $25.99 for a mouse-pad, and $45 for a keyboard!