RadioShack Cuts Earnings Outlook Again

RadioShack Corp. (RSH), the No. 3 electronics retailer, Friday cut its earnings forecast for the second time in a month, citing slowing cell phone sales and disappointing results in its battery business.

Shares of RadioShack, the largest U.S. seller of mobile products, fell 9 percent to their lowest level since June 2003, deepening the slide in the stock since mid-February when it first cut its full-year outlook.

RadioShack has been slow to jump on the trend of consumers buying mobile phone service in "family plans," which allow the purchase of extra lines at lower prices, Chief Executive David Edmondson, said on a conference call with analysts.

Store managers may be discouraged from pushing the plans because they cut into overall gross margins on extra mobile sold with them, he said.

"This is a trend that's here to stay and we have got to get execution around it," Edmondson said, noting that about 50 percent of new cell phone lines being sold by the mobile phone industry are part of family plans.

RadioShack said it now expects first-quarter earnings of 30 cents to 34 cents a share, down from its previous forecast of 39 cents to 41 cents.

Analysts on average forecast 40 cents a share, according to Reuters Estimates.

RadioShack also said it was not likely to meet the lowered 2005 earnings forecast it gave in February. It plans to update that outlook in its first quarter earnings release, scheduled for April 19.

The company said it has also been hurt by disappointing initial sales of a new EV-DO, a high-speed wireless technology, Edmondson said.

In addition, price mark-downs on batteries that were specially packaged for the holidays unexpectedly cut into sales of batteries in regular packages, he said.

On Feb. 17, RadioShack cut its full-year 2005 earnings to $2.34 to $2.40 a share, about 7 cents less than its previous forecast for a jump of as much as 21 percent over 2004. At the time, the company said adverse weather hurt shopping in key markets.

Analysts on average have forecast $2.32 a share for the year, according to Reuters Estimates.

Legg Mason telecommunications analyst Chris King said Radioshack's lower-than-expected wireless sales could reflect efforts by its biggest customers, Verizon Wireless (VZ) and Sprint (FON), to sign up more of their subscribers themselves.

"Both Verizon and Sprint are migrating a greater percentage of their sales to their direct channels," said King.

He said Verizon signed up 67 percent of its customers itself on the fourth quarter, compared with 63 percent the quarter before.

Shares of RadioShack were down $2.43 at $25.25 on the New York Stock Exchange (search), after trading as low as $25.00 earlier. The stock as of Thursday had fallen by 16.7 percent since it warned on its 2005 outlook on Feb. 17.

Jefferies & Co. analyst Donald Trott lowered his rating on RadioShack to "hold" from "buy," citing the lack of factors that would drive the shares higher.

"While the company continues to generate meaningful excess cash flow, much of which has continually been plowed into share repurchases, we see little catalyst over the more visible horizon to advance RadioShack's stock price," Trott wrote in a research note.