Once upon a time, Fort Worth, Texas-based RadioShack (RSH: Charts, News, Offers) had the same geek appeal of an Apple Store, a small but focused electronics and consumer gadgets store where customers could find anything they needed to complete their electronic projects. The stock price was in the $70s and “finding something at your local RadioShack” was an often heard phrase. After the turn of the millennium, however, RadioShack’s stock plunged to its current trading range of under $20 a share, as poor business decisions failed to help the struggling company keep up with the rapidly changing times, with the expansion of the Internet, portable media players, smartphones and cloud computing making the once vaunted RadioShack seem as antiquated as a typewriter. Like a small town grocer facing superstore Goliaths, RadioShack is now marginalized by the likes of Best Buy (BBY: Charts, News, Offers), Amazon (AMZN: Charts, News, Offers), Wal-Mart (WMT: Charts, News, Offers) and Target (TGT: Charts, News, Offers). Can this 90-year old business survive and evolve with the rapid tides of changing technology?
Daily Chart
Currently, RadioShack has a market cap of $2.1 billion, with $4.42 billion in trailing revenue, $723.4 cash and $$677.8 million in debt. Margins have consistently declined, averaging -8.3% annually, compared to Best Buy’s margins of 5.6%, Wal-Mart’s 6.5% and Amazon’s 17.2%. Since RadioShack is far older than any of its peers, this bodes very poorly for the small electronics retailer, as it has neither the resources nor the room for growth to keep up with superstores and e-commerce.
The company’s troubles began in 2000, when its own branded products, such as Realistic, Optimus, Presidian, Accurian and Enercell labels, became increasingly irrelevant and weighed down heavily on its bottom line. Realistic and Optimus were discontinued in 2000. The same year, its contract to sell fading electronics manufacturer RCA’s products was outdated as well, and failed to excite investors.
Realizing that sales were steadily declining, in 2004 the company initiated a controversial company wide inventory and profitability correction plan called Fix 1500, which was an assessment and isolation of the poorest performing 1,500 managers for retraining and possible termination. The result was a demotion or termination of 1,734 managers company-wide over a six-month period. To add insult to injury, the company canceled the employee stock purchase plan, which cut employees out of the slight news-based price surge that followed the restructuring.
By 2005, it was clear that Fix 1500 hadn’t fixed a thing, and RadioShack’s stock price plunged 31%, which prompted the company to desperately attempt to repurchase employee shares at a lower price that the original purchase, which decreased the amount of outstanding shares, increased volume, slightly held up the stock price, but ultimately decreased the annual EPS. By the end of 2005, the company’s earnings had crashed 63% due to an inventory increase resulting for switching a wireless provider, and the stock hit a three-year low.
As with most directionless companies struggling to tread water, RadioShack had trouble keeping a dedicated CEO. In February 2006, CEO David Edmondson resigned over a falsified resume regarding his education level. Following that, Claire Babrowski took over as CEO for less than half year before leaving the company. Finally in July 2006, Julian Day, credited for the revival of Safeway (SWY: Charts, News, Offers), Sears (SHLD: Charts, News, Offers) and K-Mart was tapped to be the next CEO. Day executed a new strategy to increase sales volume, increase margins and grow profitable square footage. He also downsized the company considerably, closing nearly 500 stores which failed to make more than $350,000 revenue yearly, and laid off 20% of the company workforce.
At the end of 2008, the tech market had evolved, with Apple (AAPL: Charts, News, Offers) dominating headlines with its iPhone and iPod products, Asus ushering in the netbook revolution, and a stable of GPS manufacturers fighting for dominance. RadioShack recognized that it needed a new approach to capture this market of “new tech”. Its experimental answer was PointMobl, a group of stand-alone concept stores in the Dallas/Fort Worth area dedicated to selling wireless handsets from its two primary carriers, AT&T (T: Charts, News, Offers) and Sprint (S: Charts, News, Offers), GPS systems, netbooks and iPods. RadioShack took a play from the Apple playbook and used a minimalist, white design to distinguish it from its RadioShack stores, which also carried wireless products. At the time of this writing, there is no clear plan yet moving forward with expanding PointMobl to other areas, which doesn’t bode well for investors, as PointMobl seems to be the company’s only dedicated investment in profitable wireless technologies. In the most recent quarter, RadioShack’s wireless sales rose 45% and was the most profitable segment. This gives it a prime position in the projected $24.9 billion tablet market which it absolutely must capitalize upon.
Currently, RadioShack’s name elicits, in most investors, memories of small stores in unimportant malls, an afterthought compared to one-stop superstores. The electronics store business is a cutthroat marketplace, as CompUSA and Circuit City have learned. With the expansion of the Internet and comparative shopping, stores struggle to maintain significant margins, and brick and mortar stores like RadioShack have a much harder time keeping up with its competitors. On the bright side, the company increased net sales for the past three quarters, though by small amounts – 4%,4.7% and 6.2%, respectively. The best route the company can take is to consolidate into larger stores to rival Best Buy and move ahead with full PointMobl integration, or simply wait along and pray another company acquires it before inevitable bankruptcy.
Other News About RSH
RadioShack Plugs Into a $24.9 Billion Industry
Can Tablets save RadioShack?
RadioShack Needs Verizon Wireless
But does Verizon need RadioShack?
Other Stocks in the News
Toyota Hegemony Fades as Damage Brings Sony-Style Decline
As GM flies high, Toyota struggles to raise its stock price.
AMD: CEO Meyer’s Exit Not A Good Thing; Hoping For The Best
Bad news for AMD as Intel continues dominating the market.
Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
Mr.Sun nailed all the low points of the last decade of this fading retailer. RadioShack used to own the hookup / hobbiest / cool gadgets crown, and could have profitably continued with their “We’ve Got Answers” reputation. However, the move into branded electronics, without the ability to go head to head with BBY (and now Walmart) in selection and pricing has killed them. The arrival of Julian Day, and the subsequent culling of legacy RadioShack employees has doomed them. Even their so called strong position in mobile is failing at a store level. Go visit a local store and check out the mobile phone displays – few live handsets on display, dummy phones missing, pricing missing and inconsistent, and a lack of saleable inventory. Add a unmotivated, untrained and uninspired workforce and you have a broken down old nag just waiting for the relief of being put out of it’s misery. A pity, because we could have used a local alternative to the big boxes.