RadioShack Won’t Complete Its Hail Mary

by Tom Taulli | April 23, 2013 1:16 pm

Wall Street can’t seem to figure out what to do with RadioShack’s (NYSE:RSH[1]) first-quarter earnings — what started as a 7% drop eventually swung to a 5% improvement before leveling off to more muted gains.

Either way, investors shouldn’t take the bait.

In the quarter, RadioShack posted a grueling loss of $43.3 million, or 43 cents per share — an enormous dip from the year-ago period’s $8 million (8-cent) loss. Even excluding one-time items, the deficit came to 35 cents per share, which was miles away from the Wall Street estimate for an 11-cent trip in the red.

Revenues were just as ugly. Sales fell 7% to $849 million — a huge miss from the $961 million forecast by the Street — thanks to same-store sales that were off by 5.7%.

RadioShack is feeling heavy pressure from its mobile business. There’s still plenty of demand for smartphones and tablets, but the margins are getting squeezed. That’s why RSH terminated its agreement to sell phones at Target (NYSE:TGT[2]) stores — the deal was simply a money-loser.

Going forward, these margin issues will only continue to get worse. RadioShack not only has to compete against bigger retailers like Best Buy (NYSE:BBY[3]), Target and Walmart (NYSE:WMT[4]), but also the online etailers (NASDAQ:AMZN[5]) and eBay (NASDAQ:EBAY[6]), and even mobile carriers like AT&T (NYSE:T[7]) and Verizon (NYSE:VZ[8]), which have their own retail locations.

To help get things back on track, RadioShack’s new CEO, Joseph Magnacca, wants to give the brand a refresh, in terms of a new marketing campaign and remodeling of stores. But this sounds like too little too late, and not just because the term “radio” has been a relic for many years.

No, the marketing pizzazz won’t address the aforementioned margins, nor the company’s merchandising issues. The fact is that RadioShack’s small store footprint translates into not enough room to sell enough product.

The takeaway: RadioShack looks like yet another dying retailer that has little differentiation in the marketplace and a mostly cosmetic turnaround strategy. Unless you’re a trader, RSH doesn’t have much to offer here.

Tom Taulli runs the InvestorPlace blog IPO Playbook[9]. He is also the author of High-Profit IPO Strategies[10]All About Commodities[11], and All About Short Selling[12]. Follow him on Twitter at @ttaulli[13]. As of this writing, he did not hold a position in any of the aforementioned securities.

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