Things at RadioShack Are Only Getting Worse

×
downgrade Radio shack storeRadioShack (RSH) shouldn't be surprising anyone on the downside when it reports its quarterly results, but that's exactly what happened on Tuesday.

Net sales fell 3% to $1 billion, weighed down by a 1.6% decline in same-store sales. Analysts were banking on a slight top-line uptick.

Things only get worse from here, as gross margins were mauled as the company sold fewer post-paid wireless plans. The end result is that RadioShack's adjusted loss of $0.33 a share was more than double the size of the loss that Wall Street was forecasting.

Despite all that, after the the market's initial reaction and sell-off, traders bid the stock back up to a recovery that saw it end Wednesday 10% higher than it began the week.

Missing Out

The pros should be used to this by now. They were burned during each of this year's first two quarters. They were targeting modest profits, only to see RadioShack check in with red ink. They figured that they would stay a step ahead of the malaise by bracing for a deficit this time, but it turns out that they just weren't pessimistic enough.

The decline in post-paid mobile -- a higher-margin category for the company than the cutthroat pre-paid market -- is a surprise. The smartphone revolution is booming, and RadioShack was supposed to be a major beneficiary of the transition.

Unlike the dedicated carrier stores, RadioShack offers phones and contracts with all of the major carriers. It also teamed up with Leap Wireless' (LEAP) Cricket to launch its own line of contract-free wireless service.

RadioShack stores are conveniently located in quiet suburban strip malls. It should be a compelling hassle-free option for folks seeking a little hands-on guidance in picking out their next phone. Well, folks just aren't going to RadioShack.

It's Been a Long Way Down

It's been 10 months since RadioShack was the subject of my Why RadioShack Will Never Be Great Again article. The stock has gone on to shed more than 80% of its value.

RadioShack is stressing its liquidity. Right now it has more than enough cash -- $938 million -- to cover its $749 million in debt. However, the retailer's model isn't going to be sustainable for long if it continues to post widening deficits.

Even if RadioShack manages to squeeze out a small profit during the holiday quarter (given the seasonal push for smartphones), analysts don't see the company returning to profitability on an annual basis until 2014 at the earliest.

Prospects for its small stores -- and its even smaller kiosks at cheap chic discounter Target (TGT) -- don't seem all that encouraging. Given Wall Street's knack for understating the magnitude of RadioShack's problems, investors may want to stay away until the shrinking retailer stops calling the wrong number.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool has sold shares of RadioShack short.






Increase your money and finance knowledge from home

Basics of Diversification

Learn one of the fundamental concepts of building a portfolio.

View Course »

Bonds for Beginners

Learn about fixed income investments.

View Course »

Add a Comment

*0 / 3000 Character Maximum

13 Comments

Filter by:
Ben

Unless that store was a Dealer owned store, ALL RadioShacks ARE open on Sundays.

October 27 2012 at 8:35 AM Report abuse rate up rate down Reply
KMCCLA

Radio Shack used to be about -- Radios. Once Tandy died, and it became more "corporate" with the "bean counters" more interested in profit, they got away from their roots. It is called "Radio Shack" not "Phone Shack". I think in part Radio Shack would get more respect if they at least got back to their roots, like Amateur Radio, and other small electronic stuff. I went in not long ago, and the guy there did not even know what amateur radio even was. I got my first experience with electronics with one of the kits they used to have, it only did not teach how they worked, but how to read a schematic as well. I got my first book about amateur radio there as well (although it took me a few years to get my license). They also used to have magazines teaching about this stuff as well. Now when I walk in all they want to do is sell me a phone -- which I do not want or need. How many hams are out there, who used to depend on the Shack, but the Shack does not care about them. Getting back to the roots -- Radio -- just might help.

October 26 2012 at 9:33 PM Report abuse +1 rate up rate down Reply
rhumdinger

i went to radio shack to check on radio anteannas salesman laughted at me. I thought radio shack was supposed to sell radios n eq. he told me of 1 that mite have the radio anteanas that i was lookin for.

October 26 2012 at 8:10 PM Report abuse rate up rate down Reply
Greg Albers

If you pay your employees substandard wages you will soon have a substandard company.

October 26 2012 at 7:58 PM Report abuse rate up rate down Reply
John Azzopardi

I was a Radio Shack Store Manager and District Manager for 13 years in the 70's and 80's when Charles Tandy was alive. The managers in those days were paid a % of the profit of the store as if it were their own business. Successful Radio Shack Managers in those days made a real good living. Radio Shack also matched up to 80% in the company stock and 401K Plans. There were many self made millionaire store managers in those days. It started to go downhill when Charles Tandy passed away in 1983. Tandy Corp (who owned Radio Shack) decided that their top Producers were getting paid too much and changed their pay plans by attrition or promoted them to different levels within the company. I remember being promoted and taking a paycut. This led to most of the better employees leaving.

October 26 2012 at 6:01 PM Report abuse +1 rate up rate down Reply
startreker

I don't know where your radio shack is . But mine is great. Friendly staff and very knowledgeable.

October 26 2012 at 4:53 PM Report abuse rate up rate down Reply
1 reply to startreker's comment
tony

Where is your`s located?

October 27 2012 at 4:35 AM Report abuse rate up rate down Reply
danny

Radio Shacks day has passed. They will never be a leader again,and have a hard time being a follower.

October 26 2012 at 4:16 PM Report abuse +2 rate up rate down Reply
marshinam

They have terrible customer service. The workers in the Radio Shack in my area are unhelpful, unfriendly and rude. I stay out of the store because I don't want to give my money to a company that supports that kind of culture.

October 26 2012 at 4:00 PM Report abuse +1 rate up rate down Reply
1 reply to marshinam's comment
startreker

Don't know where your Radio Shack is but mine is great. Friendly and knowledgeable staff included.

October 26 2012 at 4:55 PM Report abuse rate up rate down Reply
addawn

They ought to consider being opened on Sunday, we went there last Sunday and three customers in a couple of minute period had to go elsewhere.

October 26 2012 at 1:17 PM Report abuse rate up rate down Reply
1 reply to addawn's comment
Ben

Unless that store is a dealer owned store, ALL radioshacks ARE open on Sundays

October 27 2012 at 8:37 AM Report abuse rate up rate down Reply
taylorvences

Could be the terrible customer service?

October 25 2012 at 4:01 PM Report abuse +2 rate up rate down Reply