RadioShack CEO Discusses Q1 2012 Results - Earnings Call Transcript

RadioShack (RSH)

Q1 2012 Earnings Call

April 24, 2012 09:00 AM ET

Executives

Molly Salky - VP, IR

Jim Gooch - President and CEO

Dorvin Lively - EVP, CFO, CAO

Analysts

David Schick - Stifel Nicolaus

Michael Lasser - UBS

Matt Fassler - Goldman Sachs

Vincent Sinisi - Bank of America

David Gober - Morgan Stanley

Mike Baker - Deutsche Bank

Dan Wewer - Raymond James

Gregory Melich - ISI

Carla Casella - JPMorgan

Presentation

Operator

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.

We may also refer to free cash flow in our discussions today. Our definition of free cash flow is operating cash flow minus capital expenditures and dividends. Read page 21 of our Form 10-Q for a full description and reconciliation of free cash flow.

Finally, 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 can get to everyone's question during the call. Feel free to re-queue if you have additional questions.

Members of the media are participating in this call on a listen-only basis and should contact us after the call with their questions.

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

Jim Gooch

Thank you Molly and good morning everyone and thank you for joining our call today. As we described to you in February, we fully expect an extremely challenging first quarter and while we were prepared for the level of difficulty the quarter would bring, reporting a loss is certainly disappointing. That being said, we've seen progress from initiatives we began implementing last year including very importantly some improvement in our highest gross margin signature platforms. This program progress contributed to monthly sequential improvement and performance throughout the quarter and that's continued into April. As we look forward we're working with a great sense of urgency to drive topline growth, expand gross margin and reduce costs. We're building on our early successes and we are very focused on our strategic initiatives to capitalize on our greater series of opportunity. These include leveraging the work we've done to improve our product and service offering and strengthen our value proposition and mobility. Reclaiming and maximizing profits in our signature platform and pursuing growth opportunities all of which I'll talk to you about in greater detail in a moment.

First, let's take a look at the high level of results for the quarter. In our mobility business, we saw a very meaningful decline in our Sprint business in the first quarter. Sprint was still performing at a very high rate in the first quarter last year as initial changes to the early program weren't put into place until April of 2011.

The year-over-year decline in Sprint was personally offset by growth in our Verizon and growth in our AT&T businesses. Verizon sales continue to outpace the loss of T-Mobile sales from last year and while Verizon sales are still below our initial expectations, we believe that overtime; we can successfully mature the business and remain encouraged about the long-term opportunities this relationship provides.

Apple iPhone units continue to grow within our mobility sales. These iconic devices help drive traffic and carry higher than average attach rates to higher margin accessories. Tablets also contribute to mobility growth. We launched the new iPad in March and we continue to expand our iPad assortment with the availability of iPad now in 1,500 stores.

Looking over at our Signature business, that was a bright spot for us in the first quarter. As many of you know, this is a high gross margin platform and it’s a contributor of about 50% of our gross profit dollars if you look at our company operated stores. We saw an improvement in sales trend in the fourth quarter and that improvement continued into the first quarter. There were multiple initiatives we put into place last year in our Signature business that delivered traction this year. Some of these include the broadening and the strengthening of our assortments particularly in tablet accessories, headphones and wireless accessories. Our expanded warranty offering which improves our value proposition by offering the consumer the choice of both a one-time payment or a monthly recurring payment options. And improvements to our in-store selling processes and marketing programs which have helped us improve attach rates and reconnect with that DIY customer. Collectively we believe these initiatives are helping to improve our competitive positioning and enabling us to regain relevance with consumers in these Signature categories.

In short, our top (Audio Gap) in the first quarter however, we saw improvement in performance throughout the quarter and importantly we are seeing many of those trends continuing into April. Our action plans are aimed at driving topline sales, improving gross margin and aggressively reducing costs. We have a strong internal discipline in track record of effectively controlling SG&A and if necessary, we have the ability to take further actions to align our cost structure and improve operating profitability over the long term.

Now some final comments on our outlook for 2012. As we said last quarter we're looking for net income to be down in 2012 versus 2011. That being said, we are confident that we have the right programs and initiatives in place to drive sequential quarterly improvements as we move through 2012. Our solid cash and our solid liquidity position allows us to manage through this transition with maximum flexibility while reinvesting in the business to improve performance. In addition, our quarterly dividend remains a central component of our commitment to returning value to shareholders.

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