RadioShack (NYSE:RSH) reported a down first quarter, but it's not as if nobody expected it -- at the end of March, the company told us much of what to expect. There continues to be a fair amount of wireless woe for a company that has been, for quite some time, squeezing profits from sales that were bolstered by the popularity of next-generation mobile phones with exciting features like digital cameras.
The retailer reported net income down 19% at $55 million, or $0.34 per diluted share -- at the high end of its recently lowered guidance. Sales increased 3% to $1.12 billion, although same-store sales for the quarter fell by 1%. Free cash flow is currently at negative $105 million, compared with negative $25 million this time last year.
RadioShack issued guidance for diluted per-share earnings of $1.80 to $1.90 for 2005. That was down from the last guidance that anticipated EPS of $2.34 to $2.40 -- numbers that we had recently learned wouldn't be achieved.
In the press announcement, David Edmonson, president of RadioShack, acknowledged the quarter's disappointing aspects: "RadioShack remains a very profitable business overall, but our focus clearly must be on turning our wireless business around, while continuing to improve our non-wireless business."
The company pointed out in its conference call that sales of its personal-electronics products beyond wireless improved by 10%, based on the success of digital imaging, satellite radio, and MP3 products. However, in the wireless realm, the company said its customers "did not embrace today's newest products, such as video and Bluetooth-enabled handsets, like they embraced camera phones" in the first quarter of last year.
The past year has definitely been an interesting one, with RadioShack having squeezed profits out of slim sales gains and rested on the somewhat curious strength of its wireless offerings. Also in the mix are formidable rivals (and, in some cases, clear-cut leaders) like Best Buy (NYSE:BBY) and even CircuitCity (NYSE:CC), not to mention big-box discounters like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT).
RadioShack is currently trading at a forward P/E of 13, which may sound relatively cheap. However, questions remain about whether it can successfully push other big-ticket items (in other words, other than cables, batteries, and assorted widgets) with the same success it managed in the wireless arena. The need to boost sales beyond wireless has been an obvious trouble spot for more than recent history. Investors might want to think twice before taking a crack at RadioShack.
Want to read more on RadioShack? Check out this Foolish content:
- RadioShack's been having some wireless woes.
- Was the party winding down last fall?
- Last spring, Seth Jayson suspected RadioShack was at the crossroads.
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Alyce Lomax does not own shares of any of the companies mentioned.
