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Saturday, February 18, 2006 - Page updated at 12:00 AM

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Troubled RadioShack to close up to 700 stores

The Dallas Morning News

DALLAS — RadioShack's troubles deepened Friday, as the electronics retailer announced it would close up to 10 percent of its 7,000 stores after a report of weak fourth-quarter earnings.

At an investment conference at RadioShack's Fort Worth, Texas, headquarters, where the news was released, President and Chief Executive David Edmondson apologized to investors over "misstatements" on his résumé.

Edmondson vowed to reverse the company's fortunes with an 18-month turnaround plan to slash costs and replace slow-moving goods with hot sellers.

Though there is general agreement that RadioShack needs a turnaround plan, it is unclear if Edmondson, embroiled in personal controversy, will be able to lead it.

For his part, Edmondson projected confidence despite his own travails, first disclosed in newspaper reports earlier this week.

"What we now realize is that we must move in a more bold, aggressive manner and with a greater degree of urgency and speed," he told investors and analysts at the annual event.

But investors dumped the stock Friday. The share price dropped by $1.67 to $19.08, an 8 percent plunge.

Wall Street analysts sounded dire warnings about RadioShack's future.

"RadioShack's results, and more importantly, the guidance for next year on cash flow, point to a company in a virtual state of collapse," wrote Gary Balter, an analyst with Credit Suisse Group, in a report Friday.

For the quarter, RadioShack's net income fell 62 percent to $49.5 million, or 36 cents per share, from $130.9 million, or 81 cents per share, in the year-earlier period. Sales rose 4.9 percent to $1.67 billion.

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For the full year, net income fell to $265.3 million, or $1.78 per share, down from $337.2 million, or $2.08 per share, in 2004. Sales rose 5 percent to $5.08 billion.

One culprit behind the fall in fourth-quarter profits was a $62 million inventory write-down. RadioShack also attributed the decline to sluggish sales of profitable items, such as wireless-related products.

"The most profitable categories of the business saw a sales decline in the fourth quarter," Edmondson said. "We saw very significant low-margin category growth, but, frankly, the dollars were simply not large enough in terms of gross profit dollars to offset the other things that were happening in the business."

RadioShack plans to close 400 to 700 stores at a cost of as much as $90 million.

Top executives will be meeting with regional managers to decide which stores to close, said Claire Babrowski, executive vice president and chief operating officer.

Distribution centers

In addition, RadioShack said it would also close two distribution centers, one in Mississippi and one in South Carolina.

The disappointing financial results capped a week in which RadioShack's board of directors said it would hire an independent counsel to investigate Edmondson's portrayal of his academic credentials.

On Wednesday, Edmondson admitted that his résumé contained "erroneous information" after a report by The Fort Worth Star-Telegram questioned whether he had received a college degree.

Edmondson has maintained that he received a theology degree from an unaccredited California institution called Pacific Coast Baptist Bible College, which later relocated to Oklahoma and renamed itself Heartland Baptist Bible College.

Edmondson apologized in a statement Wednesday evening and again during the session Friday.

Questioning cut off

In a subsequent conference call with reporters, a RadioShack official cut off questioning about the controversy after reporters grilled Edmondson on his ethics.

Edmondson is awaiting trial in April on a driving while intoxicated charge.

Some analysts said firing Edmondson over the misstatements may be excessive, and could hurt RadioShack's turnaround efforts.

"You've got to let the punishment fit the crime," said John Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based outplacement firm. "In the overall scheme of things, this is probably like a misdemeanor."

But a lot depends on what the board's investigation shows. Moreover, any time a board calls for an investigation of its own CEO, it weakens the CEO's standing.

"It's not totally precluded, but politically and appearance-wise, it's unlikely that he will survive this," said business-ethics expert Richard Mason, a professor at Southern Methodist University's Cox School of Business.

The company's poor financial performance only makes things worse.

"I think that seals it for him," Mason said. "They can't really argue that he's doing a great job. It would be pretty absurd if they try to do that."

Copyright © 2006 The Seattle Times Company

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