RadioShack Slides as Margins Decline

Robert Holmes

04/28/08 - 12:38 PM EDT

RadioShack (RSH Quote - Cramer on RSH - Stock Picks) beat Wall Street's estimates for earnings and revenue Monday, but word of worsening margins sent the shares tumbling.

The electronics retailer said its first-quarter profit fell to $38.8 million, or 30 cents a share, from $42.5 million, or 31 cents, in the same quarter a year earlier. Revenue also dropped, by 4.4%, to $949 million. Still, both the top and bottom line beat the Thomson Financial average estimate for earnings of 29 cents on sales of $937 million.

RadioShack said the decline came as same-store sales fell 4% during the quarter. Revenue was also impacted by lower sales in the Sprint (S Quote - Cramer on S - Stock Picks) post-paid wireless business. Excluding the effects of the Sprint business, comparable-store sales would have been up 0.7%.

"We are pleased with the overall outcome for the first quarter of 2008, especially in light of the difficult economic environment. After a very challenging month of January, our sales and earnings trends improved significantly during February and March, resulting in an average comp store sales decrease of 1.2% for the two months," said CEO Julian Day, in a statement.

However, shares tumbled on a few negative spots in the earnings report. RadioShack said gross margin in the first quarter shrank to 47.4% from 48.5%, below analysts' expectations of 50.7%. The retailer said its gross margin was hurt by an increase in promotional activity as compared to the prior year, as well as continued price pressure on GPS units and a shift in wireless sales toward a higher mix of upgrades vs. new subscriber business.

Additionally, operating income was $64.2 million, down from $74.6 million in the prior year.

Shares of RadioShack were losing $2.38, or 13.6%, to $15.12. Among other consumer-electronics retailers, Circuit City (CC Quote - Cramer on CC - Stock Picks) fell 2.6% to $4.57, while Best Buy (BBY Quote - Cramer on BBY - Stock Picks) was higher by 0.5% at $45.32.

Looking at retailers more broadly, Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks) tacked on 0.1% to $57.69, Target (TGT Quote - Cramer on TGT - Stock Picks) was off 0.1% to $53.92 and Costco (COST Quote - Cramer on COST - Stock Picks) was down 0.4% to $71.24.