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RadioShack Closing 400 to 700 Stores

The company misses estimates by 23 cents.
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RadioShack (RSH) earnings plunged 62% from a year ago for the fourth quarter, missing Wall Street targets by 23 cents.

The struggling Fort Worth, Texas, electronics retailer also rolled out the latest wrinkle in a long-running turnaround effort, saying it would close 400 to 700 underperforming stores. The news comes as the company moves away from the nation's fastest-growing wireless carrier, Verizon Wireless, and deals with a flap over resume errors on the part of CEO David Edmondson.

For the quarter ended Dec. 31, RadioShack made 50 million, or 36 cents a share, down from the year-ago $131 million, or 81 cents a share. Excluding a latest-quarter accounting change, earnings were 38 cents a share, compared with a 61-cent Thomson Financial analyst consensus estimate. Sales rose 5% from a year ago and 4% on a same-store basis to $1.67 billion, matching the estimate.

"Sales results were good in many low-margin nonwireless categories; however, we experienced lower sales in high-margin categories. In addition, wireless sales and profits were below our expectations," Edmondson said. "The poor fourth-quarter performance caused us to take a much deeper look at the state of our business and resulted in the launch of a turnaround plan including the significant fourth-quarter inventory write-down."

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Over the next 18 months, RadioShack intends to achieve three major goals: increase the average unit volume of its core store base, rationalize its cost structure and grow profitable square feet in its store portfolio.

The company will replace old, slower-moving merchandise with new, faster- moving merchandise within higher growth categories. RadioShack will concentrate its efforts and investment on improving top-performing stores in order to deliver a great customer experience. To do so, it will close 400 to 700 company-operated stores. In addition, the company intends to better align overhead costs with its business model, which will help generate more profit per square foot. Lastly, the company will continue to expand its kiosk business and aggressively relocate RadioShack stores to better real estate.

In addition, RadioShack intends to close its distribution centers in Charleston, S.C. and in Southhaven, Miss. The impact to the company's income statement is anticipated to be neutral, but the cash implications are likely to be positive, due primarily to the release of a safety stock of inventory. The company will review overhead expenses to identify potential sources of cost reduction.

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