David Barnes
SVP & Chief Financial Officer
My Background
• 6 Years at Coors
– CFO of U.S.Business
– Treasurer and Financial Planning
• 6 years at YUM Brands / PepsiCo
– CFO and VP, Development in China
– VP Planning for International Restaurants
• Other experience
– Strategy Roles at Motorola, Asea Brown Boveri
– Consultant at Bain and Company
My Key Priorities at RadioShack
Some Highlights
• Financial reporting and rigor in our
internal controls
• Clarity and consistency in investor
communications
• Capital structure
• Financial resource allocation
Q1 2005 Income Statement Summary
Sales
$1.12 bil.
+3%
GM%
50.4%
(-18 bps)
$451 mil.
+9%
$0.34
(-17%)
SG&A
EPS
Income Statement Guidance
FY05 EPS $1.80 to $1.90
– Higher total sales
– Lower GM%
– Higher operating expenses
Free Cash Flow (in millions)
2003
2004
2005E
Net Income/
D&A / Other Non
Cash
443
488
400-440
Working Capital
209
(136)
20-70
Cap Ex
(190)
(229)
(200-240)
Dividends
(41)
(40)
(40)
TOTAL*
422
83
200-225
* 2004 total impacted by rounding. 2005 and 2006 totals reflect range of most likely cases
not range of worst to best cases.
RadioShack Corporation
Sales Composition and GM% Relative to Overall
Other 2%
Personal
Electronics
14%
Techn
ical 4%
Platform
• Wireless
Wireless
Wireless 34%
Modern Home 15%
Services
4%
Power 6%
high
• Power
Power
high
high
• Modern Home
• Technical
• Personal Elec
Based
Based on
on 2004
2004 sales
sales
low
• Accessories
Accessories
• Services
Accessories 21%
GM%
in-line
low
low
high
low
Wireless: Drivers of Shortfall
• Core store post-paid sales
• Tough anniversaries versus 2004 created by:
– Lapping improved unit economics
– Lapping improved upgrade offering
– Incentive bonuses from providers
– Camera phones
– Churn to our providers
• Unfavorable mix of prepaid versus postpaid handsets
• Early adopters not buying at RadioShack
• Average selling price pressure
Wireless: What’s Right
• Kiosk channel sales
• Units up in our core stores
• Residual revenue stream
• Inventory position
• Long term trends
– Data usage
– Subscriber growth
– Product technology cycle (e.g. MP3, video)
Wireless: What are the Remedies
• Test sensitivity of prepaid cannibalization
• High-end handset program in select stores
• Fashion angle of wireless
• Clearer POP and customer messaging
• Higher-end rate plan growth
• Product technology cycle
• Next new store format iteration coming this
summer
David Johnson
SVP & Chief Accounting Officer
Areas of Focus to Deliver Financial Results
• Improve customer experience in core stores
• Rationalize and improve infrastructure
• Leverage infrastructure and competencies
to develop new revenue streams
• Attract, retain, develop and reward great
people
Improve Customer Experience
• People
• Assortment
• Environment
Store Standard Operating Procedures
Improving Execution and Compliance
• Codified in 2004 in 26 store test
• Identified 13 SOPs with biggest impact to results
• New level of focus with measurement and accountability figured in
• Examples include: Receiving shipments, pricing, floor
replenishment, optimized labor scheduling, opening and closing
procedures
• Benefits include time (cost) savings and higher sales
–– Experimental
Experimental group
group sales
sales and
and sales
sales per
per labor
labor hour
hour up
up versus
versus control
control
group
group
• Rollout to entire store base completed by fall 2005
–– Entire
Entire store
store base
base fully
fully compliant
compliant suggests
suggests $200
$200 million
million annualized
annualized sales
sales
opportunity
opportunity
Improve Customer Experience
• People
• Assortment
• Environment
Non-Wireless Drivers: Accessories
• Shorter term
– Home entertainment, wireless
weakness
– iGo, imaging, computer, and digital
music categories selling well
• Longer term
– Continued growth in shorter term
successful categories above
– Meaningful contributions from
networking, surveillance, and storage
Non-Wireless Drivers: Power
• Shorter term
– General purpose battery GM% recovery
• Longer term
– Continuing general purpose battery strength
through ongoing successful 2004 promotion
– Specialty battery growth, driven in part by
cameras, security
Non-Wireless Drivers: Modern Home
• Shorter term
– High growth in home networking
– Respectable results in home video (e.g. DVD –
home and portable)
– Weakness in phones, home audio
• Longer term
– Cinego – portable home theater projection unit –
possible home video catalyst
– Flat panel products
– Continued strength in networking
Non-Wireless Drivers: Personal Electronics
• Shorter term
– Contributions from digital imaging, satellite
radio, MP3 (iPod and other)
– Rationalization of gifts and other lowproductivity SKUs
• Longer term
– Sustainable growth in digital imaging
Rationalizing SKUs
To Drive Productivity & Enhance Competitive Position
• Working areas of opportunity regarding rate of
sale
• Examples:
– 2004: audio/video, cassette recorders, portable CD
players, clocks, radios
– 2005 anticipated: gifts, disc jockey/public address,
karaoke
• Rationalization techniques have included:
– Reducing breadth; increasing depth
– Fewer stores
– Dot-com
– Eliminating SKUs
Improve Customer Experience
• People
• Assortment
• Environment
New Format Strategy
• Strategy
– Roll out concept to defend shareholder value
– Must build, defend and protect brand
• Financial Reality
– ROI of new format trails overall store base ROI
– New format ROI several hundred basis points above
corporate WACC
– ‘Maintenance’ cap ex on stores insufficient in previous
years; catching up
About the New Format in 2005
• 80% - 90% remodeling existing stores
– Remainder to be new and relocated stores
• Intend to touch:
– Great locations we’ll want for long time
– Stores that are not deep into lease agreements
• Unlikely to touch
– Best performing stores – which will be remodeled with
2006 prototype
– Very low square footage stores
Areas of Focus to Deliver Financial Results
• Improve customer experience in core stores
• Rationalize and improve infrastructure
• Leverage infrastructure and competencies
to develop new revenue streams
• Attract, retain, develop and reward great
people
Sam’s Club Kiosks
• At least $150 mil sales opportunity in 2005
• Accretive to earnings 1Q06 or earlier
• Carriers: Sprint, Cingular, T-Mobile
• $10 mil to $15 mil in cap ex this year
• Model same as core store wireless
– Inventory risk
– Sales & earnings all RadioShack’s
– Residual generating
– Sam’s receives rent
Sprint Branded Kiosks Organic Expansion
• 200 by YE 2005; 500 by YE 2007
• Financial implications
– Shared
– Profitable immediately for
RadioShack
– Cannibalization <10%
New Square Footage Growth Opportunity
Productivity Comparisons*
Metric
Annual revenue
RSH Store
$4.8 bill
Sam’s Kiosk
$150 mil
Sprint Kiosk
$100 mil
# of units
5,046
546
200
Revenue per unit
$835K
$275K
$500K
Sq. feet per unit
2,440
90
100
Revenue per
square foot
$342
$3,050
$5,000
* = Approximate full year calculations