Shares of RadioShack Corp. fell on Monday after the electronics retailer said its first-quarter net income fell worse than expected, dropping 8.7 percent on weaker results from its Sprint Nextel Corp. wireless business.
Shares stumbled more than 13 percent.
The Fort Worth-based company earned $38.8 million, or 30 cents per share, for the quarter ended March 31, compared with $42.5 million, or 31 per cents per share, from the same period a year earlier.
RadioShack's revenue fell to $949 million from $992.3 million last year. Comparable-store sales dropped 4 percent after a decline in demand for Sprint post-paid wireless contracts and the related accessory business, the company said.
The electronic retail store is in the midst of a turnaround plan led by Chief Executive Julian C. Day to boost results. The company has closed more than 500 stores since 2006 in a bid to cut costs. Analysts said cost cutting initiatives can only go so far.
The sustainability of this type of cost savings is questionable, as the more you cut, the harder it is to maintain the service levels necessary to drive sales and gross margin, Credit Suisse analyst Gary Balter said in a note to investors.
Excluding the Sprint related wireless business, comparable-store store sales would have gained 0.7 percent as a result of increased sales of global positioning systems units, prepaid wireless services, video gaming, digital camera and media storage, RadioShack said.
Bank of America analyst David Strasser wrote in a note to clients that RadioShack is suffering from product issues.
We have noticed better-looking stores in recent checks, although the problem remains their portfolio of products, as most new items carry lower gross margins and impede gross profit dollar growth, he wrote.
Analysts noted that larger rival Best Buy Co. has been expanding its sales of mobile phone services, which has left RadioShack hard hit.
Shares fell $2.37, or 13.5 percent, to close at $15.13 at the close of the bell.