RadioShack's CEO Discusses Q4 2011 Results - Earnings Call Transcript

RadioShack Corporation ( RSH)

Q4 2011 Earnings Call

February 21, 2012 8:30 am ET


James Gooch – President, Chief Executive Officer

Dorvin Lively – Executive Vice President, Chief Financial Officer

Molly Salky – Vice President, Investor Relations


Matthew Fassler – Goldman Sachs

Dan Wewer – Raymond James

Patrick Palfrey – RBC Capital Markets

William Reuter – Bank of America Merrill Lynch

Chris Lang – UBS

Oliver Liao – ISI Group

Seth Sigman – Credit Suisse

Shaun Kolnick – Morgan Stanley

Brad Thomas – Keybanc Capital Markets

Anthony Chukumba – BB&T Capital Markets



Good day ladies and gentlemen and welcome to the Fourth Quarter 2011 RadioShack Corporation Earnings conference call. My name is Fab and I’ll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. If at any time you require operator assistance, please press star followed by zero and we will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Molly Salky, Vice President, Investor Relations. Please proceed.

Molly Salky

Good morning everyone and welcome to the RadioShack Fourth Quarter and Full-Year 2011 Investor Conference Call and Webcast. With me on the call today are Jim Gooch, President and Chief Executive Officer; and Dorvin Lively, our Executive Vice President, Chief Financial Officer and Chief Administrative Officer.

We filed our 10-K with the SEC earlier today. Our earnings release and the 10-K filing, along with a replay of this webcast are available on our IR site. Also note that we’ve provided a reconciliation of GAAP versus non-GAAP financial measures on Page 9 of our earnings announcement.

I want to remind everyone that we may make forward-looking statements on the call today either in our prepared remarks or in the associated Q&A session. These statements would include words like expect, believe, anticipate, or words with similar meaning that are based on our beliefs and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from our forward-looking statements about those results. These risks are detailed in our various filings with the SEC, such as our most recent Form 10-K, as well as our news releases and other communications. The Company does not undertake to update or revise any forward-looking statements which speak only as of the time they are made.

Following our prepared remarks today, we have allowed ample time to address any questions that you may have. Please limit yourself to one question and one follow-up so that we may get to everyone’s question during this call. Feel free to re-queue if you have additional questions.

With that, let me turn the call over to Jim Gooch, RadioShack’s President and CEO.

James Gooch

Thank you, Molly, and good morning everybody. Thank you for joining our call today. We knew that the fourth quarter was going to be challenging. Unfortunately, the results were below our expectations. Let me go through a few of the factors that impacted us during the quarter.

First, Sprint’s underperformance – Sprint’s changes in their customer and credit models continued to impact our mobility sales and gross profits in the quarter. We’ve discussed in prior quarters Sprint’s customer model changes beginning in second quarter. This continued us to impact us in the third but we expected an improvement in trend going into the fourth quarter. In fact, the trend worsened as tightening of the credit model combined with their early upgrade change to further deteriorate our trend.

Second, several factors negatively impacted our mobility platform gross margin rate: a higher mix of lower margin Smartphones that was the most significant; the expansion of iPhone into three carriers combined with the launch of iPhone 4S resulted in a dramatic increase in the mix of iPhone sales. This helped to drive our positive comp store sales but negatively impacted our margin mix.

Next, the higher overall percentage of mobility revenues – this mix shift was driven by both the expansion of Target Mobile Centers and the growth of mobility in sales in our Company-operated stores. This shift puts pressure on our overall gross margin rate as mobility margins have historically been below the Company’s average rate.

And finally, the quarter and holiday season was highly promotional and highly competitive, certainly more promotional activity than we expected, and this also impacted margins across all platforms.

Now I’d like to provide some context on the impact of the Sprint changes. Sprint’s been our longest, our most mature, and our largest post-paid carrier relationship. Our growth in Sprint was a significant driver of our mobility platform growth in 2009 and ’10, becoming the majority of our mobility platform sales in 2010. With this large position, their model changes resulted in meaningful impacts to both our mobility and overall results. We continue to work closely with Sprint to improve our business, with both of us very committed to long-term profitable growth.

Our results also reflect our ongoing efforts to maximize opportunity in our mobility business, particularly now that we can offer the top national wireless carriers offering their best handsets and the best prices in the industry. Without question, with the addition of Verizon, our position in mobility today is stronger than it ever has been. The mobility platform continues to be our growth platform, one that is supported by our convenient high-touch, high service store model, and we’re focused on maximizing this opportunity moving forward.

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