Bloomberg News

RadioShack Loss Widens to $98.3 Million as Sales Tumble

June 10, 2014

RadioShack Corp. (RSH:US)’s first-quarter loss (RSH:US) widened to $98.3 million as sales slid for the ninth straight quarter, raising concerns that the electronics chain can’t pull out of a tailspin.

The net loss in the three months through May 3 expanded to 97 cents a share, from a loss of $28 million, or 28 cents, a year earlier, the Fort Worth, Texas-based company said today in a statement. The deteriorating results sent the shares tumbling as much as 22 percent in early trading.

Chief Executive Officer Joe Magnacca, grappling with competition from Amazon.com Inc. and Wal-Mart Stores Inc. as well as sluggish demand for electronics, has pledged to boost efficiency, cut costs and develop new merchandise. The turnaround effort hit a snag earlier this year when creditors blocked a plan to close 1,100 underperforming stores, forcing RadioShack to shut as many as 200 instead.

“The results were worse than people thought,” Will Frohnhoefer, a special-situations equity analyst for BTIG LLC in New York, said in an interview. “It speaks to a flawed strategy.”

Excluding some items, the loss was 98 cents a share. The average of 13 analysts’ estimates compiled by Bloomberg was 51 cents. Sales fell 13 percent to $736.7 million.

Same-store sales (RSH:US) in the quarter slid 14 percent, driven by declining traffic and “soft performance” in mobile phones, the company said today. Analysts estimated an 8.9 percent decline.

Instead of going head-to-head with Amazon, RadioShack should have focused on customers who lack credit and can’t order online, said Frohnhoefer, who has the equivalent of a hold rating on the stock.

‘Too Late’

“They’re trying to appeal to the wrong consumer,” he said. “It’s too late in the game to change the strategy.”

RadioShack’s operations consumed $37.8 million in cash, and the company ended the quarter with cash (RSH:US) and equivalents of $61.8 million, down from $109.6 million a year earlier. The company said it had an additional $361.9 million of liquidity available through a credit agreement.

RadioShack shares dropped 12 percent to $1.36 at 9:37 a.m. in New York and earlier slid as much as 14 percent for the biggest intraday decline since May 16. The stock plunged 41 percent this year through yesterday.

Magnacca, a former drugstore-chain executive, has brought in a new team of leaders (RSH:US) and overhauled store design to revive the business. The company jokingly referenced the process of updating its aged stores in a 2014 Super Bowl commercial featuring Hulk Hogan and other 1980s characters.

Design Goods

Last week, the retailer said it’s teaming with product-developer PCH International of San Francisco to help startups design goods for direct sale to RadioShack stores.

The company may not have enough time to effect a turnaround, Scott Tilghman, an analyst at B. Riley & Co. in Boston, said today in an interview.

“At this rate of cash burn, I think the vendors are going to begin to get nervous,” said Tilghman, who recommends selling the shares. “Their near-term fate rests with the vendors” as the critical back-to-school and holiday seasons approach. He estimated a “better-than-50-50 likelihood” that the company may need to seek protection from creditors.

The continuing slump has drawn the ire of investors, who rejected the company’s executive compensation for the second year in a row, according to a filing yesterday. About 55 percent of votes were cast against the compensation plan in a nonbinding referendum at last week’s shareholder meeting, not counting abstaining investors.

Electronics Demand

Other consumer-electronics sellers have reported tepid demand in their most recent quarters as well. Best Buy Co.’s sales trailed analysts’ estimates as mobile-phone and tablet purchases waned. Sears Holdings Corp. said weak consumer-electronics sales pulled down its revenue, and HHGregg Inc. posted a 19 percent same-store sales decline in the category.

“There’s just not a lot of compelling product that’s come out recently, particularly in mobile, and RadioShack is a lot more focused in mobile” than competitors, said Anthony Chukumba, an analyst at BB&T Corp. in New York, who has the equivalent of a hold recommendation on the shares.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, James Callan


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Companies Mentioned

  • RSH
    (RadioShack Corp)
    • $0.34 USD
    • -0.00
    • -0.98%
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