RadioShack Posts Wide Miss

It will close up to 700 stores.
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A pair of profit warnings didn't adequately prepare Wall Street for

RadioShack's

(RSH)

fourth quarter, in which earnings slid 62% from a year ago and badly missed estimates. The company said it will close up to 700 stores in an effort to turn its business around.

Investors weren't waiting around. They sold the stock down 95 cents, or 4.6%, to $19.80 in premarket trading.

RadioShack earned $49.5 million, or 36 cents a share, in the quarter, compared with $130.9 million, or 81 cents a share, a year ago. The latest quarter included a charge of 2 cents a share related to an accounting change. On average, analysts were forecasting earnings of 67 cents a share for the latest quarter.

The miss reflected a decline in gross margin to 41.1%, from 49.3% a year ago. According to the company, inventory was written down to the tune of $62 million in the quarter, while the merchandise mix favored products sold at a relatively lower profit. RadioShack also offered more discounts in the latest quarter.

Full-year earnings were $1.80 a share before the accounting charge. The company warned on both Jan. 12 and Dec. 16 that 2005 earnings would miss its previous guidance of $2.14 to $2.24 a share.

Fourth-quarter sales rose 5% from a year ago to $1.67 billion, matching estimates. RadioShack had comparable-store sales growth of 4% in the quarter.

"Sales results were good in many low-margin non-wireless categories; however, we experienced lower sales in high-margin categories. In addition, wireless sales and profits were below our expectations," the company 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."

To accelerate a turnaround, RadioShack will close 400 to 700 company-operated stores, and said it will replace "old, slower-moving merchandise with new, faster-moving merchandise within higher growth categories."

"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.