RadioShack's slow, painful death
The company just posted a horrible quarter and suspended its dividend. There's little hope it can turn things around in this age of 'showrooming' and online buying.
Analysts have turned on the company, and with good reason. It has simply lost its direction. That became clear this week after RadioShack suspended its dividend and swung to a $21 million loss in its second quarter from a $25 million profit a year earlier.
Shares fell to an all-time low of $2.46 after the earnings were announced. They recovered to $2.64 Friday. A year ago, shares were $14.
RadioShack made a big bet on smartphones earlier, and that's what's keeping the company hanging on. People are going there to buy cheaper, lower-margin phones. Mobile phone sales rose 3.3% in the quarter, but that wasn't enough to offset the 26.5% plunge in sales of other consumer electronics.
Analyst Michael Lasser of UBS thinks RadioShack is suffering from an identity problem. It's tried to become a phone and mobility product seller, but that hasn't resonated with consumers, Lasser wrote in a recent note. He lowered his price target on the stock to $2 from $3. "RSH's efforts to address its problems reflects 'more of the same' thinking," he wrote.
You can hear more from Lasser in the following video.
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RadioShack still has 4,700 stores across the country, often in small strip malls with low rent. The stores don't have much traffic, and half of their space seems devoted to phones at this point. When I go into a RadioShack store (which isn't often, I admit), I get immediately approached by the overly aggressive sales staff asking to help. There isn't much opportunity for browsing or spontaneous purchases; you get what you need and leave.
RadioShack's profit margin tumbled in its most recent quarter to 37.8% from 45.9%.
The Motley Fool thinks RadioShack could improve its business by selling things that people actually want to buy, such as an Apple (AAPL) iPhone service desk or a universal remote programming station. That might generate more interest than sales of batteries or remote-controlled cars. "The only problem is that doing something that logical might cost the company its prized title as the worst retailer ever," writes a snarky Michael Lewis.
Maybe RadioShack could become the Brookstone of electronics accessories, selling higher-end items you don't need but that seem pretty nifty. It's a long shot.
RadioShack is trying to sell itself to shoppers again. Its launching a new advertising campaign soon asking the question "Why RadioShack?" It may be able to improve awareness of its brand, but that won't help two of RadioShack's biggest problems: People buy electronics online and from big-box retailers, and the business of selling cheap, low-margin phones has no future.
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I will miss the shack, I used to be able to get electronic parts there. Anymore they don't have what I am looking for and "No...my phone is fine THANK YOU". They have lost their identity and market-share to cheap throw away electronics made in China that aren't worth the time to fix.
Radio Shack is another victim of a bygone era same as the bookstores, mall department stores, and video stores.
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All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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