Moody's and Fitch, two of the major credit-rating services, announced that they were downgrading RadioShack debt. Fitch cited a "lack of stability in the business" but said RadioShack has adequate liquidity. Moody's said RadioShack "needs to confirm its cost structure and its capital structure" to support a lower-margin business model.
RadioShack's stock (ticker: RSH) dropped 63 cents to close at $5.34 on the New York Stock Exchange, its lowest level since February 24, 1981, according to Bloomberg News.
CEO Jim Gooch said the electronics retailer, which is transitioning to focus on wireless products and services, has the right product mix but needs to build customer awareness of its offerings.
"Our transformation is still a work in progress," Gooch told securities analysts and reporters in a conference call.
In the quarter, sales dropped $61.6 million to $833.6 million at company-owned stores in the U.S. Comparable-store sales at RadioShack and its Target Mobile Centers -- those open at least a year, an industry benchmark -- were off 4.2 percent.
The drop was driven by a further decline in sales of Sprint postpaid products and services, and by prepaid wireless in general, Dorvin Lively, RadioShack's chief financial officer, said on the call. Sprint changed its customer upgrade model a year ago, resulting in the decline, RadioShack executives have said.
The sales drop was partly offset by higher sales of postpaid AT&T products; higher sales of tablets, related accessories and headphones; and sales increases in the company's months-old Verizon wireless business, RadioShack executives said. The company is now carrying the Apple iPhone for the top three wireless carriers for the first time.
"We're seeing progress. We're working with a great sense of urgency," Gooch said on the call.
RadioShack executives had projected a tough first quarter as the company continues its wireless transition, but "reporting a loss is certainly disappointing," Gooch said. RadioShack made a $35.1 million net profit in the same quarter last year.
Gross profit -- the difference between sales and cost of those products -- was 39.1 percent of sales, compared with 44.6 percent for the same quarter the prior year.
The quarterly loss amounted to 8 cents per share of common stock, compared with a profit of 33 cents per share for the prior year's quarter.
In a report accompanying the Moody's downgrade, senior analyst Mickey Chadha said the company's credit is being hurt by "the negative trend in RadioShack's margins" as sales are skewed towards low-margin and highly competitive mobile products.
Fitch said it believes RadioShack's move toward lower-margin business will make it "difficult" for the company to return to its past earnings.
It projected that RadioShack "will need to continue to be promotional given the challenging economy, price-sensitive consumer, and largely commoditized consumer electronics space."
RadioShack recently re-established a quarterly cash dividend for the first time in years, and Gooch said "the dividend's going to remain a central component of what we're doing. There are absolutely no plans to discontinue that dividend."
RadioShack closed 41 stores in the first quarter, about half in malls, and now has 4,435 stores, Gooch said.
The number of closures was higher than the 19 RadioShack closed in the same quarter last year, but Gooch attributed the higher number to the timing of lease renewals.
"I would not anticipate any significant level of store closures moving forward," Gooch said.
RadioShack, which has more than 200 stores in Mexico, plans to add 50 this year, he said.
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