Focusing on cellphones seems to be paying off for RadioShack, represented here by cyclist Lance Armstrong. The electronics retailer's first-quarter profit rose 16% to beat analysts' expectations, thanks to sales of cell phone handsets and prepaid wireless services.Focusing on cell phones seems to be paying off for RadioShack (RSH). The electronics retailer's first-quarter profit rose 16% to beat analysts' expectations, thanks to sales of cell phone handsets and prepaid wireless services.

RadioShack's earnings climbed to $50.1 million, or 39 cents a share, from $43.1 million, or 34 cents, a year earlier. Analysts had expected earnings of 36 cents, up 5.9%, according to the Thomson Reuters consensus estimate.

Comparable sales for stores open at least a year rose 4.7% during the 2010 first quarter, which management said was thanks to rising sales of Sprint Nextel wireless phones and service and the addition of T-Mobile.

Retooling the Company

RadioShack's sales of wireless handsets jumped 48.8% in a year -- including a 60% increase in prepaid wireless handsets -- and sales of wireless services gained 24.8% thanks to rising sales of prepaid airtime.

Meanwhile, sales of personal and home electronics and accessories declined, further supporting the decision to retool the company from the go-to retailer for electronics geeks to a multibrand cell phone store.

"Our performance this quarter highlights the success of our strategy to increase our focus on mobility, connectivity and innovative products and services," said CEO Julian Day, in a statement.

In the first 15 minutes after the announcement at the close of the stock market session, RadioShack shares rose 2.66% in after-hours trading, to $23.50. The buyout talk pushed shares to a 52-week high of $24 per share in April, and many analysts think it can go to $25 or higher.

Looking for a Buyer?

But since management didn't face investors in a conference call, the earnings report probably won't quiet the takeover speculation of recent weeks, since reports began filtering out that J.P. Morgan Chase was hired to look for a buyer. Many observers see a sale as a necessity, especially since its new focus on wireless is being challenged by Best Buy's (BBY) new focus on its smaller Best Buy Mobile stores. Best Buy is considered one likely Radio Shack suitor, along with private equity firms.

Analysts who favor Radio Shack note that Day's team has reduced costs and improved cash flow while repositioning the store and recently scored a coup with a deal to sell the iPhone. RadioShack ended the first quarter with a cash balance of $871.8 million, but management anticipates $100 million to $120 million in capital expenditures this year as it expands its wireless efforts.

Management made no statements about the buyout talk, but investors will get another shot May 24, when the company holds its shareholder meeting in Santa Monica, Calif.

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