by Dan Burrows | March 4, 2014 12:33 pm
If this kind of cost cutting can’t prop up RadioShack (RSH) and its battered RSH stock, what can?
RSH stock plummeted 17% at the opening bell Tuesday after the consumer electronics retailer reported terrible fourth-quarter results and said it would close up to 1,100 stores.
RadioShack still will have more than 4,000 locations in the U.S., including more than 900 dealer franchises (poor bastards), but there’s no guarantee that slimming down can swing the company back to profitability.
It’s a tired cliche, but the fact remains that you can’t cut your way to growth.
The market sure saw nothing good in the news for RSH stock. If RadioShack is trying to make itself pretty for a private equity proposal or acquisition offer, no one seems to believe it, or no one cares. After all, a stock usually rallies when a company says it’s slashing costs in such a dramatic fashion.
In this case, the market seemed bitterly focused on RadioShack posting a wider loss for the all-important holiday selling season.
Like Best Buy (BBY) before it, RadioShack was slaughtered by fewer shoppers visiting its stores and the necessity of slashing prices to move merchandise in a futile effort to compete with Amazon.com (AMZN) and Walmart (WMT). (Indeed, RadioShack looks like the Best Buy of the future if that retailer’s own turnaround program doesn’t turn soon.)
In 2013’s final quarter, RadioShack said it lost $191.4 million, or $1.90 a share. That’s much wider than last year’s loss of $63.3 million, or 63 cents a share.
Even uglier for RSH stock, Radio Shack didn’t come close to analysts’ estimates. After stripping out certain items (as analysts usually do), RadioShack lost $1.29 a share. Wall Street’s average forecast was for a loss of 16 cents, according to a survey by FactSet.
That’s an astounding miss.
Revenue likewise missed Street estimates, falling to $935.4 million from $1.17 billion. Analysts expected revenue of $1.12 billion.
Worst of all, same-store sales cratered 19%. Same-store sales are considered a critical marker of a retailer’s health because they exclude receipts from recently opened or closed stores. Falling same-store sales also indicate increasing margin pressure, which is always bad for the bottom line.
Anyone betting on RSH stock for the possibility of a spectacular turnaround has to be rethinking the wisdom of that trade. Even before Tuesday’s action, RSH stock lost more than 90% of its value since peaking in 2010.
It also has been astonishingly volatile. Have a look at the 52-week chart below. RadioShack stock has been up nearly 40% and down more than 30%. That’s a trading range of more than 70 percentage points.
The extreme volatility in RSH stock has given nimble traders and algorithms ample opportunities to squeeze out profits, but it has been a nail-biter for anyone betting on RadioShack’s turnaround.
By dumping 20% of its store bases, RadioShack should buy more time to sort itself out. And even if it wasn’t the prime reason for getting smaller, RadioShack does look more attractive for a potential suitor after ditching so many underperforming locations.
But that’s no reason for retail investors to touch RSH stock.
The troubled retailer is rapidly running out of options in a market that has turned against all consumer electronics chains.
And there’s certainly no putting Amazon back in the bottle.
True, there’s probably room for one national chain, such as Best Buy or maybe even HHGregg (HGG). After all, brick-and-mortar retail is hardly dead. But outside of a merger or roll-up, but it’s hard to see how RadioShack — a company that’s been behind the curve for a decade or more — could be the one left standing.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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