Dave Edmondson, chief executive of Radio Shack, said the third largest US consumer electronics store was expecting a challenging fourth quarter, as it handles the transition from selling Verizon to Cingular wireless phones from January 1.
“I think every single employee in this company knows how important this transition is, not just for short term results, but for our the long term benefit of our shareholders...but it will not be without its challenges,” he said.
Roughly one third of RadioShack’s revenues comes from wireless sales at its network of over 7,500 stores and kiosks. In August, the retailer announced that it had signed a new 10 year sales agreement with Sprint/Nextel, and a similar deal with Cingular to replace its expiring agreement with Verizon.
Mr Edmondson indicated that RadioShack was unlikely to receive the same level of access to Verizon’s latest phone technology during the fourth quarter - when sales are boosted by holiday spending - as the current agreement expires. But he expected that the retailer would be ready to launch its new Cingular phones on January 1, and would have fully dealt with the transition by the end of January.
RadioShack’s shares have fallen more than 28 per cent this year, as it has struggled to maintain its share of the wireless market in the face of increased competition from stores directly owned by the service providers.
The retailer announced net income of $108.5m or $0.75 per diluted share for the third quarter, including a non-cash, non-recurring tax contingency gain of $56.5m, or $0.39 per diluted share. Without the charge, the earnings were down 7 per cent on the same period last year.
Total sales in the third quarter of 2005 were up 8 per cent to $1.2bn, but profit margins were reduced as a result of a major clearance sale, part of the retailer’s efforts to introduce a more select assortment of products in its stores. Sales at stores open for at least a year increased by only 1 per cent.
RadioShack also said that wireless sales at its conventional stores again fell during the quarter on the previous year but this was offset by sales from its new network of more than 700 kiosks in malls and discount stores, to produce a 15 per cent increase.
He also said that the company was working to boost its non-wireless sales, including introducing better store formats for of its range of Apple’s Ipod personal music systems. “Frankly, we are selling all that we can get...it comes in the back door and it goes out the front, and we like that,” he said of the Ipods.
Mr Edmondson, who took over as CEO earlier this year, has been seeking to overhaul RadioShack’s store operations, introducing systems aimed at gathering better information on its customers in order to increase productivity. The retailer has also
He again stressed the retailer’s belief in the potential of its new kiosk strategy. “We believe this is a significant growth opportunity for our company...we have more people who call us and want us to get into this business than we have time to operationalise and digest.”