RadioShack Slides as Margins Decline

RadioShack RSH 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 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.