RadioShack sees profit drop on Sprint weakness

Mon Jan 30, 2012 5:53pm EST

(Reuters) - RadioShack Corp (RSH.N) issued a disappointing fourth-quarter earnings forecast on "significant declines" in its Sprint wireless business and the shares of the struggling electronics retailer tumbled more than 18 percent on Monday.

The retailer forecast fourth-quarter earnings of just 11 cents to 13 cents a share. Wall Street had expected 37 cents a share, according to Thomson Reuters I/B/E/S.

RadioShack said weakness in the Sprint business more than offset sales growth from its partnership with Verizon Wireless (VZ.N), rising revenues from AT&T Inc (T.N) and higher sales of tablets and e-readers.

"We are disappointed that these positives were overshadowed by significant declines in our Sprint business," said President and Chief Executive Jim Gooch.

RadioShack shares dived 18.4 percent to $8.35 in after-hours trading from a close of $10.23 on the New York Stock Exchange.

Radioshack's problems with Sprint come less than a year after the retailer severed ties with Deutsche Telekom AG's (DTEGn.DE) T-Mobile in favor of No. 1 U.S. carrier Verizon Wireless, citing the underperformance of that partnership.

For its part, Sprint Nextel Corp (S.N) is coping with ballooning costs after taking on Apple Inc's (AAPL.O) iPhone 4S and trying to stem customer defections.

Anthony Chukumba, an analyst with BB&T Capital Markets, said it appears Sprint is getting stricter about the credit scores people need to apply for its wireless plans.

The other major issue plaguing the retailer is its growing reliance on revenue from wireless.

"Wireless is a double-edged sword," Chukumba said, underscoring that margins in the wireless business are lower than RadioShack's core business, particularly with the iPhone.

RadioShack's major partners - Sprint, Verizon and AT&T - are pushing the more heavily subsidized iPhone.

"The profit margin a retailer makes on an iPhone is significantly less than a comparable Android device," he said.

Earlier this month, Credit Suisse downgraded RadioShack to "underperform," saying weaker wireless trends and discounts to drive business in its partnership with Verizon Wireless will hurt the U.S. consumer electronics chain's earnings this year.

RadioShack also said it decided to suspend share repurchases for the near term.

The retailer faces cut-throat competition from Best Buy Co Inc (BBY.N). During the holiday season, it was forced to offer more discounts to win over shoppers.

(Reporting by Lisa Baertlein and Edwin Chan in Los Angeles and Dhanya Skariachan in New York; editing by Andre Grenon)