* Q3 EPS 37 cents vs. Wall Street view 35 cents
* Sales up 6.2 pct at $1.05 billion; beating estimates
* Wireless business offsets weak sales of accessories
* Analysts worry about margin, accessory business
* Shares down nearly 8 pct
(Rewrites, adds analyst comments)
By Dhanya Skariachan
NEW YORK (Reuters) - RadioShack Corp posted
a surprising drop in quarterly gross margin due to weakness in
its electronics accessory business and more demand for lower
margin mobile handsets, and its shares fell nearly 8 percent.
The U.S. electronics retailer also said its margin would
remain under pressure as it works to improve its assortment in
the accessories section and invests in wireless kiosks inside
RadioShack's gross margin in the quarter fell to 45.4
percent from 47.6 percent, missing an average forecast of 48
percent, Oppenheimer's Brian Nagel said in a note. That also
compares with margin increases of 140 basis points in the
second quarter and 50 basis points in the first quarter, .
Strong sales of smartphones like Apple's newest
iPhone did help the company beat analysts expectations, but the
market for that business is highly competitive, with retailers
from Wal-Mart Stores Inc. to Best Buy Co Inc to
wireless companies themselves battling it out.
"The only part of their business that is growing is
wireless, which is a wonderful thing as long as there is no
competition," Wedbush analyst Michael Pachter said, but added:
"Best Buy has made it very clear they want to own this
RadioShack has sought to counter weak demand for converter
boxes, antennas and other accessories by selling wireless
devices and calling plans.
RadioShack shares, which had risen about 47 percent over
the past year as the company looked at putting itself up for
sale, were down 7.8 percent on Monday at $21.02.
The company, which has a market value of about $2.7
billion, has drawn interest from several buyout firms ranging
from Blackstone Group and TPG Capital to Bain
Capital to Advent International, but no deal has been reached.
Pachter said he had never considered RadioShack an
attractive buyout candidate because of its high valuation and
dim growth prospects for its core business.
"A private equity firm that buys them is a fool," he said.
Besides Best Buy, RadioShack faces stiff competition from
online retailers like Amazon.com and some carriers
that sell phones directly to consumers.
RadioShack's third-quarter net income rose 23 percent to
$46 million, or 37 cents a share, from $37.4 million, or 30
cents a share, a year earlier.
Analysts on average were expecting a profit of 35 cents a
share, according to Thomson Reuters I/B/E/S.
NOT COOL ENOUGH?
RadioShack, which has been trying to rebrand itself as "The
Shack," runs about 4,680 company-operated stores in the United
States and Mexico, more than 940 wireless phone kiosks in the
United States, and about 1,240 dealer outlets worldwide.
While Pachter likes RadioShack's "ubiquitous" presence in
the United States, he thinks the company has not done enough to
rebrand itself as a destination for mobile phones or to cater
to younger customers.
The company's shift in focus to mobile phones could mean
it's time for a name change.
"I still think it's my grandmother's store. I don't think
it is hip and cool for young people to go to," Pachter said.
He has an "underperform" rating on RadioShack and a
"neutral" on Best Buy and added that he did not think of
consumer electronics as a great sector to invest in.
"I don't think it's a growth industry at all."
In the quarter, RadioShack's sales rose 6.2 percent to
$1.05 billion, while analysts expected $1.04 billion. Sales at
company-operated stores and kiosks open at least a year also
rose 6.2 percent.
The company has benefited from adding T-Mobile as
a postpaid wireless carrier and the recent roll-out of wireless
kiosks inside Target stores. It revenue outside the
United States rose from sales at independent dealers and
company-operated stores in Mexico.
(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn, Dave
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