RadioShack Continues to Decline
Tuesday saw RadioShack's (NYSE: RSH) fourth-quarter profit fall a full 79 percent. As horrific as that number sounds, it is actually in line with the company's expectations, as it warned of a struggle due to its mobile phone business weighing heavily on the bottom line.
Once the very definition of technology in America, RadioShack is now seen by many as a relic of a bygone age. However, a push into the cellphone industry was seen by many analysts as a sound survival tactic. RSH does still have a reputation for quality and excellent customer service. Those would, on the surface, appear to be excellent attributes when selling mobile phones.
RadioShack said last month that Sprint Nextel (NYSE: S) had changed the way it deals with customers, and that had seriously affected phone activations.
Analyst Anthony Chukumba of BB&T Capital Markets stated that Sprint was increasing its credit score standards for potential subscribers. These new standards may make Sprint activations less plentiful. In addition, with Sprint having added Apple's (NASDAQ: AAPL) iPhone to its lineup, more new Sprint customers may be opting for the iPhone--a device with lower profit margins for retailers when compared to comparable Android phones.
Other factors RadioShack said negatively impacted results included discounting and low margins earned on Smartphones.
The numbers came in on Tuesday at a profit of $11.9 million, or 12 cents a share, down from $57 million the previous year. According to the Wall Street Journal, net sales are up 5.9 percent to $1.39 billion, meeting the January forecast of an 11-13 cent per share profit on $1.39 billion in revenue.
“The final results for our fourth quarter are in line with the preliminary range we issued in January,” Jim Gooch, RadioShack's CEO, said in a release. “Despite our gross margin challenges, we have a strong balance sheet, are making progress in our mobility business, and expect to advance our business improvement initiatives in 2012.”
On Thursday, February 16, Wedbush said that, while revenue is expected to be $1.39 billion (comps were up ≈ 2%), EPS is expected to be only $0.11 – 0.13, sharply below 2011 levels. “We increased our estimates for revenue to $1.39 billion from $1.37 billion and for comps, to up 2.0% from up 1.4%, but decreased our estimate for EPS to $0.11 from $0.41.”
Wedbush also said that it was maintaining its Neutral rating and $8 price target. “Our price target reflects an 8x forward multiple of our 2012 EPS estimate of $1.00, below the low end of its historical range of 10–18x forward EPS due to declining profitability, core weakness, and increasing competition.”
One week prior to the Wedbush report, Deutsche Bank issued a research report stating that the RSH stock was bouncing up a little after a Sprint report.
Still, the new numbers shoe same-store sales increasing 2.2 percent on tablets and mobile phones with AT&T (NYSE: T) and Verizon Wireless contracts, in-line with RSH's forecast. The revenue was dragged down by declining sales of Sprint and T-Mobile handsets, according to Radio Shack.
The gross margin took a dive to 34.8 percent from 41 percent, which RSH largely puts down to low-margin smartphones and other mobile devices accounting for a larger share of sales, in addition to increased holiday sales.
On Friday before the holiday, shares closed at $7.88. In recent premarket trading, RSH is inactive.
