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RadioShack’s falling fourth quarter profits prompts store closures

RadioShack recently released its 2013 fourth quarter financial report, which showed that despite efforts to boost its wireless and overall service footprint in the past, the company is experiencing reduced profits. As a result, RadioShack plans to close up to 1,100 stores in the U.S. in the future while continuing to operate more than 4,000 locations in the U.S.

Past efforts to boost the brand
In the past, RadioShack has partnered with several organizations and increased its product offerings in an attempt to improve its overall store brand. RCR Wireless reported that the business signed a deal with Verizon in 2001 for a "store-within-a-store" approach in which enabled RadioShack locations to sell Verizon products.

More recently, the organization leveraged Leap Wireless' Cricket network for the launch of its own brand of wireless phones in 2012, according to RCR. The business began offering two new smartphones, as well as No-Contract services for customers.

However, the stores' decline was illustrated last year with the dissolution of a partnership with Target. RCR stated that the retailer severed ties with RadioShack in order to pursue a deal with Bringstar and MarketSource for its Target Mobile wireless stations.

Fourth quarter report details
The report, which shows the company's financial results for the quarter ending on Dec. 31, 2013, noted that total sales for the period reached $934.5 million, which is a significant decline from last year's $1.17 billion. RadioShack also saw falling consolidated gross profits, which were $278.4 million in the past quarter. This figure fell by more than 50 percent, as last year's gross profits reached $419.3 million, or 35.8 percent of net sales compared to last quarter's 29.8 percent of net sales.

Another concern for the company is rising selling, general and administrative expenses. According to the report, RadioShack put $389.3 million toward these expenditures, up by approximately $5.8 million from last year's totals.

The organization also saw increasing losses in shares, with a reported net loss of $191.4 million or $1.90 per diluted share in the 2013 fourth quarter. Last year, the business had net losses of $63.3 million.

Joseph Magnacca, RadioShack chief executive officer, said the lower earning reported during the fourth quarter came as a result of reduced in-store traffic, significant discounts offered on consumer electronics as well as the overall mobility marketplace. The company also experienced a few operational issues that led to the reduced profits. 

Magnacca also said the company is continuing to make progress in its five pillar turnaround plan despite the current business environment. The plan includes repositioning the brand, revamping the product assortment, reinvigorating the stores, increased focus on operational efficient and financial flexibility.

Plans for store closures
Within the past few weeks, the company has been reviewing its service footprint in light of the fourth quarter financial results, and plans to thin out its store locations for improved standing in certain areas.

"Over the past few months, we have undertaken a comprehensive review of our portfolio from many angles – location, area demographics, lease life and financial performance – in order to consolidate our store base to fewer locations while maintaining a strong presence in each market," Magnacca said.

As a result, RadioShack plans to close as many as 1,100 "underperforming stores," or approximately 20 percent of its locations, but will continue to operate more than 4,000 stores across the country. The organization will also maintain its 274 locations in Mexico and 950 dealer and other global outlets. Store closure efforts will begin upon consent from RadioShack lenders through the 2018 Credit Agreement and 2018 Term Loan.

Despite the current outlook, Magnacca remains hopeful for this year.

"Without minimizing the challenges ahead, we have a detailed strategic path to profitability based upon the five pillars of our turnaround," Magnacca noted. "Our entire team is focused on execution as we work to improve our performance in the coming year."

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