RadioShack is blaming the “underperformance” of Sprint smartphone sales for a more than 70 percent decline in its fourth-quarter profits.
After profits of 51 cents per share during the fourth quarter of 2010, RadioShack’s 2011 profits are slated to come in at just 11 cents to 13 cents per share, according to preliminary earnings results released Monday afternoon.
Revenue rose 6 percent to $1.4 billion on a slight increase in comparable sales for company-operated stores.
The results “are due in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models,” RadioShack said.
Fewer new customers bought Sprint service or upgraded their smartphones, resulting in a sequential decrease in quarterly sales. RadioShack also sells Verizon Wireless and AT&T products. Those operators fared better than Sprint, with both showing increases in sales.
“We continue to make progress in the mobility sector with growth in sales of new iconic handsets, incremental sales growth from new partner Verizon Wireless, higher revenues from AT&T, and higher sales of tablets and e-readers,” RadioShack President and CEO Jim Gooch said in a statement. “However, we are disappointed that these positives were overshadowed by significant declines in our Sprint business.”
Sprint wasn’t the only factor that cut into profits, however. A shift toward lower-margin smartphones, price cuts over the holidays and a higher portion of wireless sales in its overall revenue contributed to the decline.
Gooch said rising sales of smartphones, tablets and eReaders are “significantly changing the margin profile of our mobility business.” RadioShack expects a year-over-year decline in its 2012 profits if its Sprint business doesn’t improve. The weak forecast prompted the company to suspend share repurchases.
RadioShack will report its complete fourth-quarter and full-year results on Feb. 21 before the stock market opens.
Verizon’s products went on sale at RadioShack in September after the retailer decided to stop selling devices for T-Mobile USA.
RadioShack’s decision to pull T-Mobile products from company-owned stores was prompted by an unresolved contract dispute with the operator and poor sales of its products. The move cost RadioShack $3 million in unsalable T-Mobile cell phones, plus a $23 million charge on other inventory and a payment to T-Mobile.
Verizon’s tie-up with RadioShack prompted it to come out with a $50 prepaid plan that has helped it reverse declines in its no-contract business, adding 252,000 prepaid customers during the fourth quarter.