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RadioShack (NYSE:RSH)

Q4 2012 Earnings Call

February 26, 2013 9:00 am ET

Executives

Bruce Bishop

Dorvin D. Lively - Chief Financial Officer, Chief Administrative Officer and Executive Vice President

Joseph C. Magnacca - Chief Executive Officer and Director

Analysts

Matthew Vigneau - Goldman Sachs Group Inc., Research Division

Oliver Wintermantel - ISI Group Inc., Research Division

Curtis Nagle

Carla Casella - JP Morgan Chase & Co, Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

William M. Reuter - BofA Merrill Lynch, Research Division

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

Daniel Goldberg

Chris Weng - UBS Investment Bank, Research Division

Grant Jordan - Wells Fargo Securities, LLC, Research Division

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 4 2012 RadioShack Corp. Earnings Conference Call. My name is Patrick, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Bruce Bishop, Vice President of Investor Relations. Please proceed.

Bruce Bishop

Thank you, Patrick. Good morning, everyone, and welcome to the RadioShack fourth quarter 2012 investor conference call and webcast. With me on the call today are Joe Magnacca, our recently appointed CEO; and Dorvin Lively, our Executive Vice President, Chief Financial Officer and Chief Administrative Officer.

Just a note, we filed our 10-K with the SEC earlier this morning. Our earnings release and the 10-K filing are available on our website, and a replay of this webcast will be available later today.

I want to remind everyone that we may make forward-looking statements on the call today, either in our prepared remarks or in the associated question-and-answer session. These statements would include words like expects, believe, anticipate, or words with similar meaning and are based upon our beliefs and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from our forward-looking statements about those results.

These risks are detailed in our various filings with the SEC, such as our most recent Form 10-K as well as our news releases and other communications. The company does not undertake to update or revise any forward-looking statements which speak only at the time they are made.

Finally, following our prepared remarks today, we have allowed time to address any questions that you may have. Please limit yourself to one question and one follow-up so that we may get to everyone's questions during the call. Feel free to re-queue if you have additional questions.

With that, let me turn the call over to Dorvin.

Dorvin D. Lively

Thank you, Bruce. Good morning, everyone, and thank you for joining our call this morning. To begin this morning, I would first like to introduce our new CEO, Joe Magnacca. As you know, Joe joined us about 2 weeks ago. And after a few comments by Joe, I will discuss our recent performance and our near-term outlook. We will then open up our call for questions.

So let me turn it over to Joe.

Joseph C. Magnacca

Thanks, Dorvin, and good morning, everyone. I am extremely pleased to be part of the RadioShack team. And as I considered the opportunity here, I quickly saw and appreciated the competitive strengths of the RadioShack concept which few companies can match, and these include an iconic brand with a 90-year heritage, a truly right-sized unique asset in our thousands of convenient locations and a wide selection of merchandise as well as a very strong private label business, all of which led to a customer base with -- that every day chooses RadioShack. This, with our highly trained store associates, I believe is a great platform to build upon.

My experience as a small box merchant working with teams to turn around challenged retail concepts will start with RadioShack's strengths and move swiftly to find practical solutions. 12 days in, I'm quickly working with the team to get up to speed on the business and build upon the current plan to address our immediate challenges and develop a short-term and long-term strategic vision and action plan for the company. And I'm very confident that we can identify and execute on new opportunities that will return this great company to a position of prominence as a retail of choice for customers every day.

I look forward to sharing this vision on future calls, and let me hand it back to Dorvin to discuss our fourth quarter results. Dorvin?

Dorvin D. Lively

Thanks, Joe. On the balance of today's call, I'll cover the performance of our business in the fourth quarter and then share a few thoughts on our near-term focus and outlook.

First, let's talk about the performance for the fourth quarter. Overall, we saw the continuation of many of the challenges that we faced in the first 3 quarters of this year. Our postpaid wireless business continued to struggle, in part, because of product availability issues. You will recall the launch of the Apple iPhone 5 at the end of September and the limited supply of this new product that characterized the first 2 months of the quarter. By the time we got to December, we were able to have reasonably good in-stock positions on this device. But at that point, the demand was weaker than expected. In our company-operated stores, our mobility platform was down 8% in sales, largely driven by a 20% decline in postpaid units.

Our Target Mobile business, which is almost entirely a postpaid business, also contributed to this weakness. As we noted on the third quarter call, we gave notice to Target that we would exercise our termination rights if a profitable arrangement couldn't be achieved. In January, we announced that we will be exiting this business no later than April 8. This business has generated losses since inception and unfortunately, didn't achieve our financial goals or provide strategic benefits. We are winding down this operation and we will be solely focused on RadioShack's core business.

I am pleased that we're showing progress on other elements of our business. In our mobility platform beyond the postpaid side, we generated meaningful growth in our prepaid business and tablets. Our prepaid business, which includes partners like Boost, Virgin Mobile and TracFone, along with our own private brand offering added in the third quarter. This is a business where sales were down double digits in the first half of 2012 and then up double digits in the second half. We are seeing increased demand in this area as our customers realize the cost advantages of these offers and carriers are offering more sophisticated products in the latest in the current generation of phones on a prepaid basis. In addition, we are doing a better job of matching the right plan for each of these customers.

In our tablet business, we've seen double-digit growth all year with the increased consumer interest and demand for these new products. We're pleased with the performance in this side of our mobility platform.

Our signature platform generated sales growth for the fourth straight quarter and was up 2% in the fourth quarter. This is our highest margin business and we continue to invest and build strategic categories like our wireless accessories category, head phones and portable speakers. We will continue to improve our assortment here as well as increase our penetration of our private brand offerings.

On the CE side, this platform continues to experience the sales declines in line with the rest of the industry. Importantly though, we have a greater discipline on the products we choose to sell and how we manage our margins in this platform. The outcome is a substantial improvement in gross margin rate. More importantly, we increased the gross profit dollars generated from this platform in the fourth quarter, despite a sales decline of 22%.

Overall for the fourth quarter, we generated sales of $1.3 billion, which was a decline of 7% compared to last year. Our consolidated gross margin rate of 34.5% was down 30 basis points and was relatively stable to the prior year fourth quarter. We generated an operating profit of $17 million, which is down from last year due to the decline in sales and lower gross margin, offset by cost controls on our SG&A line.

I want to make a quick comment on an unusual one-time item in the fourth quarter related to our income taxes. Based upon GAAP accounting requirements, we took a $67 million non-cash charge, which increased the valuation allowance against our U.S. federal and state net deferred taxes. This is primarily a result of our recent losses. It's important to note that as we turn our business around, these tax assets are still available, it will offset future earnings even though they've been written down on our balance sheet.

Now let me give you a quick update on the balance sheet and liquidity. We continue to have a strong balance sheet. Our inventories have increased $164 million year-over-year. The largest driver was higher priced iconic wireless handsets and a higher mix of our mobility business shifting into these high-end smartphones. We also made inventory investments in growing categories, like I mentioned earlier, wireless accessories, head phones and tablets. These increases were driven by strategic investments in specific product categories as well as a softer postpaid mobility market in the latter part of December that I mentioned earlier.

We believe the quality of our inventory is good. Importantly, a significant portion of this increase in inventory was still in accounts payable at the end of the year, which increased by $87 million.

We have total liquidity of $926 million, including the $536 million of unrestricted cash and $391 million available under our $450 million ABL facility, which expires in January '16. Our only near-term maturity is the $287 million remaining on the 2013 converts due on August of this year. The balance of our debt comes due in 2016 or later.

Now let me turn to a few comments on our near-term outlook for 2013. While our fourth quarter results showed the early signs of some stability with the positive progress I shared earlier and our gross margin rate erosion subsiding, we expect that the first 2 quarters of 2013 will continue to be challenging. The first quarter has started off slowly, particularly with some continuation of the challenges we've seen in our postpaid business and then additionally, consumer spending has been impacted by the delay in tax refunds from typically early in January to late January, early February. We will likely continue to see transaction declines in margin rate erosion quarter-over-quarter in the postpaid business over the next couple of quarters as we build our strategic plans to address the challenges in this business.

We expect continued growth in our high-end margin signature business. We like the progress we're making here. We have more work to do, but we like the progress thus far. We've invested in the expansion of our wireless accessories, head phones, portable speakers and those kinds of categories, and we believe we can grow both our revenue and market share in these types of categories.

Our CE business will continue to be challenged on the top line, but we expect to continue to see year-over-year margin rate improvement and more importantly, generate more gross profit dollars.

Across our businesses, we will continue to grow our private brand product offerings, which provide the customer more choice in a high quality at a lower price point. This will be most visible in our signature and CE platforms and then to a lesser extent, in mobility. Looking ahead, we also see the benefit from exiting the target business starting in the second quarter.

In the balance of our business, working with Joe and our senior management team, we're developing our strategic vision to address both our challenges as well as growth opportunities. We are aggressively looking at all areas of our businesses. Given the state of the business and the transition that we're going through in our new leadership team, we will defer any further discussion of our strategy and initiatives until a little bit later this year.

In closing, we know we've got a lot of work to do that still lies ahead, but with Joe on board as well as other new senior executives, we have a strong management team in place ready to drive change and to execute the strategic vision for this great brand and company.

So now let me turn it back over to the operator to direct our Q&A portion.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Matthew Vigneau with Goldman Sachs.

Matthew Vigneau - Goldman Sachs Group Inc., Research Division

Welcome on board, Joe. I guess, first, a big picture question. You're the first CEO in quite some time with a retailing and merchandising background. Could you provide some early observations on things RadioShack can do much better to drive traffic and resonate with customers?

Joseph C. Magnacca

Certainly. I think -- first of all, I think you've hit one of the important elements that we've identified early on, which is driving traffic inside our stores that has other tremendous opportunity. I would say that the new team is in place, with the addition of Troy Risch and Huey Long, who have been focused for about 5 or 6 weeks on that initiative and already seeing some pretty substantial gains in terms of putting focus on rebuilding up that traffic. And I think what you'll see is that there's a customer-first mentality inside our business, and probably has been for 5 or 6 weeks, that we'll continue to build on. Clearly, awareness and relevance of the store is key for me. We have a marketing strategy that touches different communities in different ways, and our objective is to really use social, mobile and mass media in a way that will encourage and drive traffic in -- appropriately for each of those locations. So lots of opportunity and upside, but lots of great work done to date.

Matthew Vigneau - Goldman Sachs Group Inc., Research Division

Okay. And just related to this, the signature business was considerably stronger than mobility and it sounds like these trends are persisting, a nice dynamic with a high margin structure to the signature business. But with mobile units declining, is this category at risk without a pickup in results at mobile? Or I guess put differently, how tied are the segments to one another?

Dorvin D. Lively

Yes. I mean, I still think there's a lot of opportunity there. First of all, I think we can drive more unit volume and have that attached. But if you look at the sales, just to take -- let's take iPhone cases as just a simple example, we sold 2 times as many iPhone cases kind of in that post-launch period as we've sold iPhone 5 devices itself. And I think that what it speaks to is, I think, we've started to build a destination category here and I think we can continue to do that with better assortment strategy. We've added a little bit more fashion to that area. So some things that really got off the ground more in the back half of 2013 and clearly, an area where we're going to continue to invest this year.

Operator

Your next question comes from the line of Oliver Wintermantel with the ISI Group.

Oliver Wintermantel - ISI Group Inc., Research Division

Welcome, Joe, looking forward to working with you.

Joseph C. Magnacca

[indiscernible]

Oliver Wintermantel - ISI Group Inc., Research Division

Can you just help us with what the cannibalization rate was for the Target kiosk to your company-owned stores? And how much of these sales, when you exit target, do you expect to come back to the company-owned stores? And then maybe can you help us with a more normalized margin rate x Target?

Dorvin D. Lively

Yes. I mean, obviously, it's hard to quantify was there ever any cannibalization? We don't believe that there was. The Target guest is in there. In most cases, it's certainly in the earlier years as we were building this business not as a destination to Target Mobile. I think Target and our associates have done a good job of building that category within Target. But it was not a "front of the store", not a real "store within a store", it was just in line within the Target stores. And you look at where they're located, you look at where we're located between strips and malls, my belief is there was not a tremendous amount of cannibalization. Now the flip side, obviously, as we now talk about getting out of that business, what can we do to draw those customers that came in and shopped the Target Mobile brand within the store, what can we do to try to pull those into our stores? And I would like to hope that there is some analogy there, albeit it was not branded RadioShack within the Target stores. But as -- I'll go back to Joe's comment earlier. I mean, we're looking at all means of our advertising and media campaigns this year to be able to drive more traffic in our stores. And hopefully, we can reach to those kinds of customers as well.

Joseph C. Magnacca

And Oliver, as you and other folks on the call may be attempting to model out the Target business, we have provided disclosures in the Q3 10-Q on Page 14 footnote #4, which provides some insight into performance of our Q3 and Q3 year-to-date. And then with our 10-K, note 16 has information based upon our segment detail, which will provide some clarity there. And the only other 2 data points that you would need is that the sales across the year are pretty even with a little bit of seasonality in the holiday season, and the gross margin rate across the year was approximately 20% for that business. So with those data points, you should be able to model what the Target business was to be able to back it out of '12 and then begin to think about what you want to do for 2013.

Oliver Wintermantel - ISI Group Inc., Research Division

Great. And maybe just as a follow-up, could you maybe give us a little bit more detail again on the receivables as inventories were up quite substantially in the fourth quarter while sales were down. Can you help us with that, please?

Dorvin D. Lively

Yes. We -- one of the comments that I referred to earlier when I was talking about inventory is we have a higher mix, obviously, year-over-year and quarter-over-quarter, when you look at the mix of our business within each of the platforms, but certainly in the mobility business with a higher mix of more smartphones today that we're selling on a unit basis than, say, 12 months or so ago and these devices are going to naturally be a higher priced unit cost basis in inventory. So that's clearly one of the drivers. And as I mentioned, half or more of that was still sitting in payables at the end of the year. On the receivables side, we did have some timing just in terms of our receipt of payments from carriers year-over-year. Sometimes it comes in at the beginning -- or rather at the end of the month, sometimes it comes in the beginning of the month, a little bit of that in December as well as we had the income tax receivable that got -- that we received post year end that was built up in the inventory at the end of December. So those are really the drivers year-over-year.

Operator

Your next question comes the line of Denise Chai with Bank of America.

Curtis Nagle

This is Curtis Nagle stepping in for Denise. Just a couple of quick questions. It looks like your -- the run rates of your unallocated expenses continues to improve and I was wondering what you guys are doing to improve costs and kind of what other opportunities you see. And then just a follow-up after that.

Dorvin D. Lively

Yes. We -- as you guys know, we took some G&A out back in the third quarter of last year, mainly on just people cost as rationalization of that here at the headquarters. We continue to look at our supply chain in areas where we can be more efficient with how we flow goods, whether that's working with our vendor partners to go direct to store, and we can do that in some cases with product launches and et cetera. But I think that, as I mentioned earlier, with Joe and some new folks on board, all of us as a management team, we're going back and looking at areas where we can be more efficient with our overhead cost. That's all the way from IT spending and the best use of those dollars as well as even in our media area. If you look at the way that we've invested in the past year or 2, are there better ways to drive traffic into our stores with spending those media dollars in a different way, but all of those are things we're looking at right now.

Curtis Nagle

Fair enough. And just the second question I had was, wondering if you guys had any supply chain constraints in handsets other than the iPhone 5 during the quarter?

Dorvin D. Lively

There's been some with the Galaxy 3 as well. I mean, those 2 devices, if you go back over, say, the last 4 months, are clearly the iconic devices out there. That's what -- what's -- consumers that are looking certainly for that kind of a postpaid plan basis are looking to. But I'd say that the 5 was clearly the biggest issue from a constraint perspective and that was across supply chain for all retailers as I'm sure you're aware of. But I would say, going back over the last 60 days plus-or-so, it's been spotty here or there. So no major, major constraints out there.

Operator

Your next question comes from the line of Carla Casella with JPMorgan.

Carla Casella - JP Morgan Chase & Co, Research Division

You've got the convert maturity in August. I'm wondering what your view is, whether you would come into the market to buy those back ahead of the maturity, or if you're waiting until the maturity date.

Dorvin D. Lively

No, I think we'll continue to look at it. We did not buy back any in the fourth quarter, we did in the third quarter. We spent most of our time in the fourth quarter dealing with the business over the year end, working on our plans for 2013, et cetera. But it's something we'll continue to look at over the next 4 or 5 months as we approach the maturity date.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And then just one question on the mobility segment. Are you seeing -- in the ongoing mobility, excluding Target, have you yet seen a stabilization in margins at all or do you have a sense for where the margins could stabilize? And how much lower that may be than where they are today?

Dorvin D. Lively

In fact, I alluded to that in my comments about looking at the first 2 quarters of this year that I think we'll continue to see some challenges that we've seen last year as we cycle through the types of things that were happening in the mobility business throughout 2012. I think as we look at it, most recently, were probably getting to a point that I think we've got some stability there, but at year-over-year comparisons, it's going to be a little bit difficult. It's clearly a point of where we are working diligently internally as we build our strategies for this year and beyond. How can we better manage that business to higher margins? But from a specific kind of near-term's perspective, I think we'll see some challenges in the first couple of quarters.

Operator

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Joe, let me welcome you to the team as well.

Joseph C. Magnacca

Thank you.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Just -- I recognize it's still early for you here, Joe, but as you think about the business today, do you feel like store closures, is it a tool that you might need to use as you look at a business that did lose money in 2012?

Joseph C. Magnacca

Well, I think as we've stated probably on our previous calls as well, it doesn't make a lot of sense to look at store closures, unless there's a lease end in play. So we'll continue to go through that review. But we -- where our opportunity and our focus really has been trying to find stores that are borderline profitable and turning them into higher producing stores. And that's really where our focus is right now.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Got you. And then as you look at the team that you have around you today, recognizing that Troy and Huey are now parts of the management team, are there other key positions that you need to fill or change?

Joseph C. Magnacca

Yes, I'd say there's -- we're going through that review right now. And as we talked about earlier in the last 2 weeks, we spent a lot of time looking at the team and where the voids are inside our business. Clearly, as you know from previous calls, we're still without a Chief Merchandising Officer inside our business. So that's definitely a void. But I did say that the work that I'm currently doing and assessing, it is getting very specific to roles and functions, so whether it's store development, renovation programs, et cetera, and what expertise do we have inside our business. Again, I'm going to take much more of a four-wall view of the store and look at the voids as it relates to that and start to build the transformation story and putting the right people in place to ensure we can do that.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Great. And then lastly, Joe, I recognize it's all still very early right now, but what kind of a timeline is the board holding you to in terms of when they are expecting a plan from you?

Joseph C. Magnacca

So we had our board meeting last week and we certainly put together kind of an outline that talks to a 100-day plan. And the expectation is that come end of March, early April, we'll present that plan back to the board. It will be a plan that we, as a leadership team, will agree upon, then it's the board, and begin moving forward at that point.

Operator

Your next question comes from the line of William Reuter with Bank of America Merrill Lynch.

William M. Reuter - BofA Merrill Lynch, Research Division

Just one quick question. On the higher levels of inventory, do you feel that there's any there that might have some markdown risk, or that you guys will have trouble moving, or is this just a timing issue?

Dorvin D. Lively

When you look at our inventory, the composition of that, certainly going back over the last 3 or 4 quarters or so, the composition of the good inventory versus some that, you would say maybe is approaching end-of-life, then mix hasn't changed much. And so there's always areas where, when we bring in new product launches and we have to move product, we build reserves against those kinds of things. But I would say from a -- and I made the comment, I feel very good about our inventory at the end of the year. I don't see any significant change in where it has been in the past. A lot of what I mentioned earlier was pure timing and then just kind of mix of product within that, particularly the mobility mix.

William M. Reuter - BofA Merrill Lynch, Research Division

Okay. And actually I lied, I have one more. I'm curious whether there is still any severance costs that were in the quarterly results here from the third quarter reductions in your work force?

Dorvin D. Lively

Not in Q4.

Operator

Your next question comes from the line of Dan Wewer with Raymond James.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

It's great to have a CEO with small box retail experience running RadioShack again. I've had a real simple question. Before you received the phone call on this opportunity, just curious how often did you or your family shop at RadioShack? And I was curious as to what your thoughts were about the RadioShack brand itself and if that conveys what the store is all about today.

Joseph C. Magnacca

Well, a little bit of a tough question. I'm Canadian and RadioShack is not in the Canadian marketplace. So the family, which is still -- my kids are going to school up there, they've not really been exposed to RadioShack as a brand. Certainly, when I moved to New York and then to Chicago, I had some exposure to the brand. But I would say that when I first experienced RadioShack, I realized it wasn't the same RadioShack I grew up with in my youth, it changed dramatically. And obviously, mobility was the larger piece. And I think it goes back to the earlier comment about creating traffic and awareness. I don't know that we've done a great job of helping people understand the relevance of what's inside the box. I think the team has done a great job with product inside our stores and a great job with handsets on the mobility side. And I just think the biggest challenge is really the awareness piece, which I think you're touching on.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

Well, I remember back when John Roach was running the company back in the mid-80s and there was always discussions of maybe changing the brand to better line it up with the -- what the business was evolving to. Do you have that kind of carte blanche to consider maybe even rebranding efforts with our stores?

Joseph C. Magnacca

I would say that we definitely have a blank piece of paper. But I would say the equity in the RadioShack brand is probably greater than we all give it credit for. And I think in some of our international businesses and discussions we've had, that comes through loud and clear as others consider the RadioShack brand in an extremely positive way. So that's forcing us to really rethink some of the branding efforts we've made inside our business on our private brand portfolio as well. We moved away from RadioShack branding for the most part, moved to some other brands, so we'll look at that as part of the overall mix. But I think there's great equity in the brand and certainly, all the research I've read to date suggests that it won't -- it would get a very strong net promoter score from an brand relevance perspective.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

And then just my follow-up question, the data from Verizon and AT&T has been showing some good growth in their postpaid business. You noted that your unit sales were actually off about 20%. Who you think RadioShack has been losing market share to? And what's accounted for that?

Dorvin D. Lively

Yes. I think that -- obviously, when we look at Q4 specifically, and I talked about some of the unit volume decreases there, it's always hard to attribute exactly what's going on within the mix. And certainly, if you look at the 3 or 4 biggest carriers out there and then all of the other parties that are out there selling these postpaid plans and getting your exact numbers on market share, there's no doubt that in the quarter, with the iPhone 5 launch, that we were disadvantaged a bit on carriers and that there was more product availability within the carrier stores during that post launch period. And I think as I mentioned, we saw sort of got back in-stock at levels that made sense in early or to mid-December. But it's hard to put your finger on exactly the movement of that and I've seen some of those numbers that you're seeing. But clearly in 2012, I think there was some loss in market share there. As far as kind of who's picking that up or where it's coming from, it's hard to say.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

But the availability problem, that was not a decision RadioShack's merchants made, not to carry the iPhone 5, right? That was your vendor deciding not to make it available to RadioShack. Is that correct?

Dorvin D. Lively

It was mostly -- and there was a lot of press, if you'll remember, going back to that early October time period in the supply chain. And I remember seeing, reading, hearing about even at the Apple Stores that you could go online to try to buy a phone and it was 5 days out, 10 days out, et cetera. And there were times when there is no doubt we would get a shipment of the 5s in and we'd go through that in 3, 4, 5 days and then we'd be out of stock for a while. So the constraints of that was certainly not just that we were the only ones that didn't have it. And I was just saying that we were disadvantaged, I guess, to a certain extent during that launch period where the carriers had that product in the store and we didn't.

Joseph C. Magnacca

Right.

Operator

Your next question comes from the line of Dan Goldberg with RBC Capital Markets.

Daniel Goldberg

Congratulations on all of the strategic hires. I think that's great. Could you comment publicly on whether you have bought any converts back since December 31, 2012?

Dorvin D. Lively

I can't hear you. Can you speak up just a little bit?

Daniel Goldberg

Can you comment publicly on whether you have bought back any converts since December 31, 2012?

Dorvin D. Lively

No, we have not.

Operator

Your next question comes from the line of Michael Lasser with UBS.

Chris Weng - UBS Investment Bank, Research Division

This is Chris Weng calling in for Michael Lasser. I have a couple of questions on margin. Is the gross margin, do you guys think it's starting to trough out? And were there any one-time impacts at SG&A this quarter? SG&A per store is the most volatile in the fourth quarter, and I was wondering why is that.

Dorvin D. Lively

Can you repeat that question? I didn't get it.

Chris Weng - UBS Investment Bank, Research Division

Well, the first part was gross margin, do you think it's starting trough out? And on the SG&A, were there any one-time impacts this quarter?

Dorvin D. Lively

Okay. On the margin side, if you go back to my comments I made, I said that certainly if you take out the postpaid business, our margins were flat. And even on a total basis, they were down 30 basis points. So relatively, a very similar quarter to the prior year from a margin perspective. And I did -- if you go back to one of the questions earlier, I said I think we'll continue to see some challenges on a quarter-over-quarter comparison. But the way I look at it today, I think we're at the point where we should see some stability and then we've got to build from that. And then on the SG&A side, no -- I mean, I highlighted the income tax issue which is not in SG&A. There were no big one-time items that I would point out that would, say, on a quarter-over-quarter comparison should be highlighted. We had the items back in Q3 and we tried to highlight that, but no significant items in Q4.

Chris Weng - UBS Investment Bank, Research Division

Okay. And for the signature category, I was just wondering, how do you guys plan on growing that category in the year ahead? What are some of the initiatives that you are thinking about undertaking?

Dorvin D. Lively

Well, I think we continue to look at things that are similar to our existing business, closer in that we think we can get and build a good business on. And I'll use -- and we've talked about it before, but I'll use the headphones and then I'll use the wireless accessories as a couple of good categories. We continue to grow those. We believe that we've built and grown market share, specifically like in the headphones business, I think we've become a pretty good destination for that, both on the branded side as well as on the private side. And so we'll do that and continue to do so, continue to look at other things like that. And maybe I'll use the Bluetooth one as an example to that because -- and it's small but it is growing and we had a really good fourth quarter on that, both on the private side as well as branded side. But if you think about these kind of categories, they're very analogous to attachment from a head -- or from a phone perspective. And I think as we have those customers coming in the door and we're selling them phones, then we have the ability to upsell and add to that basket. So those are the kinds of things we will continue to look at as well as, as I've said on my prepared remarks, as Joe and our team goes through and looks at all the opportunities from a top line growth perspective, we'll be looking are there other categories that we don't have today or maybe we had in the past and that we need to bring back? Those are the things we're going to be focusing on.

Operator

Your next question comes from the line of Grant Jordan with Wells Fargo.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

Most of mine have been asked. I just wanted to drill down a little bit more on the inventory. I know you talked about the average price of the -- the higher priced handsets were part of the driver. But I've got to believe that there is an increase in units, as well, just given the magnitude of the increase. Do you feel like you’re at the level where you ought to be in terms of units on the mobility side or should we continue to see an increase throughout the year?

Dorvin D. Lively

I think that -- and you're right, there was some unit increases as well. And the comment I made is we certainly saw a little bit of a softer, I'll just call it the holiday season, approaching Christmas there, when we kind of got back in-stock. But certainly nothing that we're concerned about because those devices have been selling since then as well, and so it's not something that's approaching anywhere close to an end-of-life type of discussion. I think that for our business today, we wouldn't have to invest any more in that area. So as the business grows maybe some there as well. We're going to continue to look at our assortment strategy. Do we have -- do we need to have the depth across as many devices as we have and look at that as an area. I think that if you were -- if you go back to my -- just my very last question that I was answering in terms of investing in new categories, I mean that obviously requires investment in inventories as we build that. But we're certainly extremely happy with what we're getting on the wireless accessories, headphones, Bluetooth, speakers, et cetera, et cetera. But I think as in terms of going forward, we will look to probably manage that down a bit from where it's at right now with the current volume. But then as we grow the business, we'd have to invest more on inventories.

Operator

Your next question comes from the line of David Strasser with Janney Capital Markets.

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Joe, another question, just sort of stepping back. As you kind of look at the history of RadioShack and where they are today, and it's been a -- they've had the tremendous profitable past, where do you think things went wrong? Do you think it was internally related? Do you think it was environment? Do you think it was the changes in the market that weren't figured out? I'm just a little curious, as you sort of look forward, where do you think some of the inflection points were that brought the company to where it is today?

Joseph C. Magnacca

I think it's all of the above that you just described. I'd say the external environment dramatically changed in terms of who entered into our space. Obviously, we made some decisions to focus on wireless in a pretty significant way as part of our mix, which you're well aware of. And I think that internally, we became very focused on that wireless business and lost maybe some of the heritage that we had inside of our business which was focusing on the do-it-yourself business. And the one that I think resonates the most is the focus on private brand in the development side of our overall business. And those are the things that we're looking at today and saying, how do we return to some of those things as part of -- in today's environment? Certainly not moving back to where we were, but certainly leveraging some of our core strengths from the past and adapting them to today's environment.

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Yes. I mean, of the many of them, was there anything that you think that really just stood out as you were sort of doing your due diligence that said, “Wow, this is big, good or bad?”

Joseph C. Magnacca

Yes. I think -- I mean, if I just -- if you go through this exercise, and there's an interesting website that looks back at the old RadioShack catalogs that we all grew up on, you will see it was a very, very different business and probably 60% to 70% of what was in that catalog was own brand, including Realistic and certainly the RadioShack brand and Tandy. So I would say that we moved from being a leader relative to technology development to a follower, and one that sorted quite differently inside our stores, which at that point, changed the dynamic and allowed others to certainly compete with us in a meaningful way.

Dorvin D. Lively

Hey guys, thanks, and we appreciate all your time today and your interest in the company. And we look forward to discussing our first quarter results a little bit later this year. So thanks a lot.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: RadioShack Management Discusses Q4 2012 Results - Earnings Call Transcript

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