UPDATE 5-RadioShack 2nd-qtr profit tops view, sales rise

(Adds analyst comment, updates share price)

NEW YORK, July 24 (Reuters) - RadioShack Corp RSH.N posted a higher-than-expected quarterly profit on Thursday, as demand for digital television converters spurred a surprise increase in sales after several weak quarters, sending its shares up as much as 24 percent.

The sale of analog-to-digital converter boxes, ahead of the scheduled transition of TV broadcast signals to digital in early 2009, should continue to gain momentum, analysts said.

The boost provided by digital converters “should be a couple quarters long and will probably get better the closer we get to February,” said Scot Ciccarelli, an analyst with RBC Capital Markets.

Net earnings were $41.4 million, or 32 cents a share in the second quarter, compared with $47 million, or 34 cents a share, a year earlier.

When the company’s results were adjusted for a charge tied to the lease for its corporate headquarters and a gain from a tax settlement, it earned 35 cents a share, topping analysts’ average expectation of 26 cents a share, according to Reuters Estimates.

There were fewer shares outstanding in the most recent period.

RadioShack’s sales rose 6.4 percent to $995 million, breaking a persistent pattern of sales declines.

The increase was “substantial,” said RBC Capital Markets’ Ciccarelli.

“Although we sensed that sales were getting modestly better, we did not expect such a sharp improvement in the quarter,” Ciccarelli said in a note to clients.

Faster-selling items such as video games and GPS units, and RadioShack’s effort to get more shoppers to make purchases by adding store help, could have also boosted sales, Ciccarelli said.

The retailer's sales rebound comes as it faces fierce competition from the likes of Best Buy Co Inc BBY.N, and as discounters such as Wal-Mart Stores Inc WMT.N strive to boost sales of consumer electronics.

RadioShack has been closing unprofitable stores and reducing staff since turnaround veteran Julian Day became chief executive in 2006.

“Our improved sales this quarter reflect our success in improving our merchandising, store operations and overall customer experience,” Day said in a statement. But he noted that the economic environment “continues to be challenging.”

“While ... we remain impressed by the transformation that Mr. Day has done to this previously stodgy organization, finding the next GPS and driving margin from it remains the key growth driver,” Credit Suisse analyst Gary Balter said in a note.


Sales rose 7.5 percent in company-owned stores, while its online business reported a 29.8 percent increase.

Same-store sales, which track sales at stores open at least a year, rose 6.9 percent, helped by demand for items like GPS devices, video games and prepaid wireless phones, and an improvement in its AT&T Inc T.N post-paid business.

While the company had higher expenses in the quarter, its gross profit rose about 4 percent to $469.4 million, which was “most critical,” said Bank of America analyst David Strasser.

“(That tells us) that comp (same-store sales) came with real profits, and that despite weaker mix, they were able to manage gross profit dollars,” Strasser said in a note.

Reflecting its investment to improve service levels, selling, general and administrative expenses rose $15 million.

RadioShack noted its Sprint Nextel Corp S.N post-paid wireless phone business was weak and continued to hurt sales. Excluding that business, its quarterly same-store sales would have increased 12.7 percent, the company said.

The company also announced a new $200 million share buyback plan.

RadioShack shares were up $2.39, or 17.1 percent, to $16.41 in late morning trade on the New York Stock Exchange, after reaching a three-month high of $17.38 earlier in the session. Shares were still well below their year-high of $30.68, reached a year ago in July. (Additional reporting by Karen Jacobs in Chicago; Editing by Gerald E. McCormick and Derek Caney)