January 24, 2011 / 2:46 PM / 9 years ago

Weak margins to hurt RadioShack's profit; CEO to retire

BANGALORE (Reuters) - RadioShack Corp RSH.N warned of a weak fourth-quarter profit due to contracting margins and said CEO Julian Day plans to retire, sending its shares down to a year low.

A Radio Shack store is seen in Cambridge, Massachusetts April 28, 2008. REUTERS/Brian Snyder

The consumer electronics chain said Chief Financial Officer Jim Gooch, 42, will replace Day when he retires at its annual shareholder meeting slated for the week of May 16. Bryan Bevin, executive vice chairman of store operations, will also leave the company.

“Day’s focus was on turnaround and not on running the company for the long term... so I can’t say it comes as a big surprise,” Hudson Square Research analyst Scott Tilghman said.

Day, 57, joined RadioShack, which is considered a takeover target, in July 2006 and has overseen a number of cost-cutting measures since then.

“We believe this transition makes the potential sale of the company less likely in the short term,” Stifel Nicolaus analyst David Schick said in a note.

The company has been plagued by shrinking margins due to higher demand for lower-margin wireless handsets and increased markdowns.

Margins were also hurt by a disappointing performance at the company’s T-Mobile business. Last year, RadioShack signed a deal with wireless carrier T-Mobile USA Inc, a unit of Deutsche Telecom (DTEGn.DE), in an effort to boost its wireless business.

“Perhaps Day’s retirement raises a few more questions given that it comes at the same time that RadioShack is missing earnings considerably,” said Hudson analyst Tilghman, who has a “hold” rating on the stock.

Tilghman also expects pressure on the top line as the company faces stiff competition from Best Buy Co Inc’s (BBY.N) aggressive targeting of the wireless space and Verizon Communication Inc’s (VZ.N) plan to launch iPhone next month.

For the fourth quarter, the retailer expects to earn 50-54 cents a share, while analysts on average expect a profit of 66 cents a share, according to Thomson Reuters I/B/E/S.

Preliminary total net sales for fourth quarter increased about 4 percent to $1.37 billion, while same-store sales rose about 1 percent.

The Fort Worth, Texas-based company’s shares slipped 13 percent to a low of $15.31 in heavy trading on Monday on the New York Stock Exchange.

Reporting by Viraj Nair in Bangalore; additional reporting by Renju Jose; Editing by Anne Pallivathuckal

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