While a surge in sales of digital TV converter boxes fueled a comeback for RadioShack Corp.'s (RSH) first-quarter results and its shares Thursday, Wall Street's key concern remains how the gadgets retailer will keep the momentum going.

RadioShack reported encouraging signs of a turnaround in its wireless phone business, attributing the gains to changes it made late last year in its store layout and in merchandising. But excluding converter boxes and mobile phones, RadioShack's sales continued to decline, and the benefit from converter boxes should wane after the June 12 deadline for switching from analog to digital broadcast signals.

"Unlike other turnaround names, RSH seems to be positioned to survive in the near term, and a solid balance sheet is a big plus in this market," Credit Suisse analyst Gary Balter said in a note to clients. "Yet it does not change what remains a tough growth story over time, as the company searches for its next sales driver."

The Fort Worth, Texas, company posted a better-than-expected 11% increase in net income, aided by $70 million in converter-box sales - more than double some industry analysts' estimates - and by the resulting leverage on fixed expenses. RadioShack generated $200 million sales from converter boxes in all of 2008.

Net income was $43.1 million, or 34 cents a share, compared with $38.8 million, or 30 cents a share, a year earlier.

Revenue increased 5.6% to $1 billion as same-store sales climbed 5% at company-operated stores and kiosks. Dealer sales fell, but online sales jumped 28%. RadioShack said same-store sales would have been 6.2% absent an extra day a year earlier.

The mean estimates of analysts surveyed by Thomson Reuters were earnings of 22 cents and revenue of $937 million.

"We are very pleased with the results," said Chairman and Chief Executive Julian Day.

RadioShack shares recently traded up 10.7% to $11.96. RadioShack won't break out sales for its wireless segment until it files its quarterly report with the Securities and Exchange Commission next week, said Phyllis Proffer, vice president of investor relations. But she said RadioShack continues to see improvements in that business after upgrading the wireless sections in stores during the fall of 2008 and making some operational changes. Wireless phones and plans generate about a third of RadioShack's annual sales and are the retailer's largest segment.

A boost in commission rates also contributed to the second consecutive quarter of year-on-year improvement in wireless, Proffer said. She declined to offer specifics.

RadioShack's main wireless partners are AT&T Corp. (T) and Sprint Nextel Corp. (S), but the retailer does not carry Apple's (AAPL) iPhone, which boosted AT&T's wireless results reported Wednesday.

Nonetheless, various Blackberry models and the Samsung Instinct phone at RadioShack contributed to improved sales of so-called "smartphones" and to related postpaid service plans through both Sprint and AT&T, Proffer said.

"We're seeing real growth there," she said.

Industry smartphone sales have been surprisingly strong given the economic backdrop, Hudson Square Research analyst Scott Tilghman said.

"We think the company's getting a little bit of a one-time boost from the converter-box traffic" in its stores, he said. "I don't think that will necessarily keep that customer as a RadioShack customer longer term."

He also suspects sales of flat-panel TVs and other items at RadioShack were helped by an industry-wide boost in interest in electronics tied to Circuit City's store liquidations, which ended March 8.

Excluding converter box sales, RadioShack's same-store sales were down again, Tilghman noted.

Still, the latest trends improved on a weak fourth quarter, when net income dropped a bigger-than-expected 39% and same-store sales fell 9.2% as consumers shifted away from big-ticket purchases.

RadioShack's wireless sales had been sliding since 2006, dropping 2% last year, as declines with contracts and accessories tied to Sprint Nextel's business hurt sales.

Known by many for its ubiquitous stores, RadioShack has successfully trimmed operating expenses in recent years but so far hasn't come up with a sure-fire way to grow market share in a consolidating consumer electronics retailing industry. But Proffer said RadioShack has a history of finding what's hot - like converter boxes or GPS systems - and going after them aggressively.

"We look at new technology and we go into it in a big way," Proffer said. Meanwhile, she said, "growing our wireless business is going to be more meaningful to RadioShack longer term than the converter boxes."

Gross margin in the latest period fell to 46.7% from 47.4%, pressured by the lower-margin converter boxes. But operating margins rose to 8% from 6.8% - the highest figure in four years - as overhead costs held steady despite the sales gains.

Cash levels were more than double year-earlier levels as of March 31 while inventories dropped 13%.

(Kevin Kingsbury contributed to this report.)

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com