RadioShack partially blamed weakness in Sprint Nextel's (NYSE:S) postpaid sales and higher sales of Apple's (NASDAQ:AAPL) iPhone for its sluggish mobile sales, which dragged down the company's overall financials.
In the fourth quarter, RadioShack reported a 79 percent plunge in profit to $11.9 million. The company had predicted a weak quarter, and though sales clocked in at $1.39 billion in the quarter, up 6 percent year-over-year, RadioShack's gross margin fell to 35 percent, down from 41 percent in the fourth quarter of 2010.
In mobile, RadioShack faces strong competition from Walmart, Best Buy, Amazon and carrier retail stores. The company's reliance on wireless to boost its business also has the potential to cut into its profits, something RadioShack CEO Jim Gooch acknowledged last month regarding the increased availability of the iPhone at Sprint. More sales of lower-end smartphones also cut into profits, he said.
"RadioShack is increasingly at the mercy of wireless, a highly commoditized product that someone is trying to sell on every street-corner," Barclays analyst Alan Rifkin, who has tracked the retailer for 19 years, told the Wall Street Journal.
Gooch said during the company's fourth-quarter earnings conference call that RadioShack is committed to working with Sprint for the long term and that the addition of Verizon Wireless (NYSE:VZ) products in its stores helped the company. However, he acknowledged the challenges ahead, and said that the company expects net income to be lower in 2012 compared with 2011.
"In fact, we are anticipating the first quarter results to be even more difficult than the fourth quarter of 2011," Gooch said, according to a Seeking Alpha transcript. "However, after what will be an extremely challenging first quarter, we expect to make steady progress throughout the remainder of the year and depending on the timing of new device launches realize sequential quarterly improvements in net income."
RadioShack is not the only retailer facing pressure though. Earlier this week, Best Buy said it would close 50 of its big box stores, cut 400 corporate jobs and save $800 million. At the same time, Best Buy said it would open another 100 Best Buy Mobile stores in the U.S. during its fiscal 2013. The retailer said it continues to expect to have a total of 600 to 800 such stores by fiscal 2016, up from 305 currently.
RadioShack pins Q4 weakness on Sprint
Best Buy purchases Carphone Warehouse's mobile JV stake for $1.3B
RadioShack inks deal with Verizon, dumps T-Mobile
Independent RadioShack stores to sell Verizon wireless service
RadioShack's contract dispute with T-Mobile is still unresolved