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RadioShack Corporation Announces Increased Sales and Operating Income for the Second Quarter 2008

2008-07-24 05:00:00

RadioShack Corporation Announces Increased Sales and Operating Income for the Second Quarter 2008

            New $200 million share repurchase program authorized

    FORT WORTH, Texas, July 24 /EMWNews/ -- RadioShack

Corporation (NYSE: RSH) today announced second quarter 2008 comparable

sales increased 6.9% and reported operating income increased 10%.

    Net Income

    Second quarter 2008 net income was $41.4 million, or $0.32 per diluted

share compared to $47.0 million, or $0.34 per diluted share in the prior

year. Second quarter 2007 net income was favorably impacted by a $10.0

million reversal of an income tax contingency reserve. Second quarter 2008

net income was negatively impacted by $4.3 million related to the one-time

charge of the previously announced amendment to its corporate headquarter

lease partially offset by the favorable impact of a state sales tax

settlement. After adjusting for these items, proforma earnings per share(1)

increased from $0.27 in second quarter 2007 to $0.35 in the comparable 2008



    Second quarter 2008 comparable store sales increased 6.9% versus the

second quarter of 2007. The increase in comparable sales was driven by

strong initial sales of digital-to-analog TV converter boxes, continued

strong performance in GPS devices, increased sales in video gaming, prepaid

wireless phones and significant improvement in AT&T post-paid business. The

sales of the converter boxes are a result of the transition of full-power

television broadcast signals in the United States to digital only, which is

currently scheduled to take place in the first quarter 2009. The positive

trends in these categories were partially offset by poor performance in the

Sprint post-paid business. Despite an improvement in Sprint's post-paid

business versus prior quarters, it continues to be a significant negative

impact to the company's performance. But for the Sprint post-paid and

related wireless accessory business, comparable store sales in the second

quarter would have increased 12.7%.

    Total sales in the second quarter of 2008 were up $60 million to $995

million versus total sales of $935 million for the same period last year.

The overall sales increase was driven by increases in company owned stores

of 7.5%, sales to dealer/franchise outlets of 6.1% and our on-line business

which increased 29.8%. The increases in these channels were partially

offset by a 2.7% decrease in our kiosk business. The decrease in kiosk

sales is attributable to significant decreases in our Sprint kiosk

business, partially offset by increases in our Sam's Club kiosks.

    "The economic environment continues to be challenging, however, as a

credit to our team, we are pleased with our progress as we begin to drive

profitable growth," said Julian Day, Chairman and Chief Executive Officer.

"We continue our focus on opportunities to offer our customers solutions to

their needs. Our improved sales this quarter reflect our success in

improving our merchandising, store operations and overall customer


    Operating Income

    Second quarter 2008 operating income increased 10% to $71.3 million

from $64.9 million in the prior year. After adjusting for the one-time and

unusual items related to the headquarters lease amendment and state sales

tax settlement, proforma operating income(2) for second quarter 2008 was

$78.3 million compared to $64.9 million in the prior year, or a 21%

improvement. Operating income increased due to the comparable store sales

increase, partially offset by a 110 basis point reduction in gross margin

rate and slightly higher SG&A costs. The gross margin rate was impacted by

negative mix associated with greater promotional activity, the strong sales

results of TV converter boxes and a shift in wireless towards a higher mix

of upgrade versus new subscriber business.

    Selling, general and administration expenses increased $15 million to

$375 million compared to $360 million for the same period last year. The

majority of the increase was due to the one-time, non-cash charge related

to the headquarters lease combined with a greater investment in store

payroll, with a goal of improving overall customer experience and driving

profitable same store sales.

    "We are seeing the benefits of our work last year to establish the

company financial model allowing additional volume to translate directly

into increased earnings for the company. After successfully right-sizing

the cost structure, we have increased our focus on top line sales with the

goal of improving gross profit dollars. We will continue to work to improve

the mix of sales and gross margin rate in order to maximize our overall

profitability," stated Jim Gooch, Executive Vice President and Chief

Financial Officer.

    Corporate Campus Lease Amendment

    As the company announced late last month, RadioShack amended its

corporate headquarters lease. Despite the one-time non-cash pre-tax net

charge of $12.1 million ($7.4 million after-tax), the company anticipates

this transaction will save approximately $300 million in rent and occupancy

over the remaining length of the original lease.

    Cash Position

    RadioShack's cash balance at the end of the second quarter of 2008 was

$578 million which was a decrease of $52 million versus June 30, 2007. The

decrease in cash is a result of the company retiring a total of $317

million in debt and equity during the past twelve months. The net $265

million improvement in cash flow was driven by improved operating

performance, more efficient capital spending and a continued focus on

balance sheet management.

    Share Repurchase Program

    RadioShack announced today that its board of directors has approved a

new $200 million share repurchase program. The new authorization does not

have an expiration date and purchases under the authorization are

anticipated to be made from time to time.

    RadioShack announced that it has filed with the SEC its Form 10-Q for

the quarter ended June 30, 2008.

    Forward-Looking Statements

    This press release contains or may contain forward-looking statements,

as referenced in the Private Securities Litigation Reform Act of 1995 ("the

Act"). These forward-looking statements reflect management's current views

and projections regarding economic conditions, retail industry environments

and company performance. Factors that could significantly change results

include, but are not limited to, sales performance, economic conditions,

product demand, expense levels, competitive activity, interest rates,

changes in the company's financial condition, availability of products, the

regulatory environment and factors affecting the retail category in

general. Additional information regarding these and other factors is

described in the company's filings with the SEC, including its most recent

annual report on Form 10-K and quarterly report on Form 10-Q.

    About RadioShack Corporation

    RadioShack Corporation (NYSE: RSH) is one of the nation's most

experienced and trusted consumer electronics specialty retailers. Operating

from convenient and comfortable neighborhood and mall locations, RadioShack

stores deliver personalized product and service solutions within a few

short minutes of where most Americans either live or work. The company has

a presence through almost 6,000 company-operated stores and dealer outlets

in the United States and over 700 wireless phone kiosks. RadioShack's

dedicated force of knowledgeable and helpful sales associates has been

consistently recognized by several independent groups as providing the best

customer service in the consumer electronics and wireless industries. For

more information on RadioShack Corporation, or to purchase items online,


(1) See reconciliation of proforma earnings per share ("EPS") to earnings per share at the end of this release. (2) See reconciliation of proforma operating income to operating income at the end of this release. RADIOSHACK CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (In millions, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net sales and operating revenues $994.9 $934.8 $1,943.9 $1,927.1 Cost of products sold 525.5 483.2 1,024.9 980.2 Gross profit 469.4 451.6 919.0 946.9 Operating expenses: Selling, general and administrative 375.4 359.8 737.8 753.4 Depreciation and amortization 22.1 26.4 44.5 52.9 Impairment of long-lived assets 0.6 0.5 1.2 1.1 Total operating expenses 398.1 386.7 783.5 807.4 Operating income 71.3 64.9 135.5 139.5 Interest income 3.4 6.0 7.0 12.5 Interest expense (6.7) (10.7) (13.8) (21.3) Other loss (0.6) (0.1) (2.1) (1.1) Income before income taxes 67.4 60.1 126.6 129.6 Income tax provision 26.0 13.1 46.4 40.1 Net income $41.4 $47.0 $80.2 $89.5 Net income per share: Basic $0.32 $0.34 $0.61 $0.66 Diluted $0.32 $0.34 $0.61 $0.65 Shares used in computing net income per share: Basic 131.2 136.7 131.2 136.4 Diluted 131.2 139.0 131.3 138.0 RADIOSHACK CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In millions) June 30, December 31, June 30, 2008 2007 2007 Assets Current assets: Cash and cash equivalents $577.8 $509.7 $630.4 Accounts and notes receivable, net 191.9 256.0 169.5 Inventories 626.3 705.4 612.3 Other current assets 103.5 95.7 124.6 Total current assets 1,499.5 1,566.8 1,536.8 Property, plant and equipment, net 278.8 317.1 348.8 Other assets, net 117.2 105.7 101.3 Total assets $1,895.5 $1,989.6 $1,986.9 Liabilities and Stockholders' Equity Current liabilities: Short-term debt, including current maturities of long-term debt $32.3 $61.2 $192.7 Accounts payable 190.5 257.6 173.6 Accrued expenses and other current liabilities 337.4 393.5 326.1 Income taxes payable 15.5 35.7 6.4 Total current liabilities 575.7 748.0 698.8 Long-term debt, excluding current maturities 349.0 348.2 340.1 Other non-current liabilities 114.2 123.7 136.8 Total liabilities 1,038.9 1,219.9 1,175.7 Stockholders' equity 856.6 769.7 811.2 Total liabilities and stockholders' equity $1,895.5 $1,989.6 $1,986.9 RADIOSHACK CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In millions) Six Months Ended June 30, 2008 2007 Cash flows from operating activities: Net income $80.2 $89.5 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49.6 58.3 Impairment of long-lived assets and other charges 1.2 1.1 Stock option compensation 5.7 4.9 Net change in liability for unrecognized tax benefits 2.3 (10.0) Provision for credit losses and bad debts -- 0.2 Deferred income taxes 0.7 0.9 Other Items 9.6 (1.1) Changes in operating assets and liabilities: Accounts and notes receivable 63.9 79.3 Inventories 74.4 139.8 Other current assets (2.8) (5.5) Accounts payable, accrued expenses, income taxes payable and other (163.7) (203.2) Net cash provided by operating activities 121.1 154.2 Cash flows from investing activities: Additions to property, plant and equipment (25.4) (21.9) Proceeds from sale of property, plant and equipment 0.3 1.3 Other investing activities 1.0 1.8 Net cash used in investing activities (24.1) (18.8) Cash flows from financing activities: Purchases of treasury stock -- (46.5) Proceeds from exercise of stock options -- 77.1 Changes in short-term borrowings and outstanding checks in excess of cash balances, net (23.9) (7.6) Reductions of long-term borrowings (5.0) -- Net cash (used in) provided by financing activities (28.9) 23.0 Net increase in cash and cash equivalents 68.1 158.4 Cash and cash equivalents, beginning of period 509.7 472.0 Cash and cash equivalents, end of period $577.8 $630.4 RADIOSHACK CORPORATION AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (Unaudited) Net Income Three Months Ended Three Months Ended June 30, 2008 June 30, 2007 $ mill EPS $ mill EPS Net Income-Reported $41.4 $0.32 $47.0 $0.34 Add back: Campus lease amendment charge 7.4 0.05 - - Deduct: Favorable sales tax settlement (3.1) (0.02) - - Income tax reserve credit - - (10.0) (0.07) Net Income-Proforma $45.7 $0.35 $37.0 $0.27 Operating Income Three Months Ended June 30, 2008 2007 Operating Income-Reported $71.3 $64.9 Add back: Campus lease amendment charge 12.1 - Deduct: Favorable sales tax settlement (5.1) - Operating Income-Proforma $78.3 (28.9) $64.9 23.0 Management believes Net Income-Proforma and Operating Income-Proforma, non-GAAP financial measures, to be a relevant indicator of RadioShack's operating performance without one time and unusual events which could mask its performance for the period shown when compared with the prior year. These proforma amounts above should not be used by investors or others as the sole basis for formulating decisions or as a substitute for measures prepared in accordance with GAAP as it excludes a number of important items. Management also compensates for limitations in these proformas by using GAAP financial measures in managing RadioShack.

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