RadioShack Corp. (RSH:US), the electronics chain with 7,000 locations, tumbled the most in more than five months after ending its dividend and posting an unexpected loss as more sales of Apple Inc. (AAPL:US)’s iPhone ate into margins.
The shares fell (RSH:US) 26 percent to $2.70 at 10:16 a.m. in New York and earlier dropped as much as 27 percent for the biggest intraday decline since Jan. 31. The stock had declined 62 percent this year through yesterday.
The net loss totaled $21 million, or 21 cents a share, compared with a profit of $24.9 million, or 24 cents, a year earlier, the Fort Worth, Texas-based retailer said in a statement. Analysts projected (RSH:US) profit of 4 cents a share, the average of 19 estimates compiled by Bloomberg.
“We have little confidence in RadioShack’s ability to earn a profit stream given their, and our, inability to see this coming,” David Schick, an analyst at Stifel Nicolaus & Co. in Washington, wrote in a note to clients today. Schick downgraded RadioShack to hold from buy.
The company said it is suspending its dividend to pay debt.
Gross margin, or the percentage of sales left after costs of goods sold, narrowed to 37.8 percent from 45.9 percent a year earlier.
iPhone Hurts Margins
Selling more lower-margin Apple iPhones was the main reason for the decline in gross margin, Chief Executive Officer James Gooch said on a call with analysts. A year ago, RadioShack sold iPhones with AT&T Inc. (T:US) service plans and has since added devices tied to Verizon Communications Inc. (VZ:US) and Sprint Nextel Corp. (S:US) Gross margin will remain under pressure in the third quarter and may stabilize in the fourth, Gooch said.
Revenue in the quarter rose 1.2 percent $953.2 million, trailing the $970.3 million average of analysts’ estimates (RSH:US) compiled by Bloomberg. Same-store sales at U.S. company-owned locations were little changed.
The cost to protect against a default by RadioShack jumped to a record after reporting the loss. Credit-default swaps on RadioShack climbed 4 percentage points to a mid-price of 36.5 percent upfront, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The increase means the cost to protect $10 million of the company’s debt jumped to $3.65 million initially and $500,000 annually for five years, from $3.25 million upfront.
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