RadioShack takes a sharp dive

Changes at one mobile carrier hurt the electronics retailer in its fourth quarter.

By Benzinga Feb 21, 2012 7:23PM

Image: Arrow Down Red (© Kyu Oh/Photodisc/Getty)By Brett Callwood, Benzinga Staff Writer

RadioShack (RSH) shares fell nearly 8% Tuesday after the electronics retailer said fourth-quarter profit fell by 79%. As horrific as that number sounds, it's actually in line with expectations, as the company warned that a struggling mobile phone business weighed heavily on the bottom line.

Once the very definition of technology in America, RadioShack is now seen as a relic of a bygone age. However, many analysts considered its push into the cellphone industry a sound survival tactic. RadioShack still has a reputation for quality and good customer service -- strong attributes, one would think, for selling mobile phones.

But changes at one of its largest mobile partners, Sprint Nextel (S), have seriously cut into RadioShack's phone activations.

Sprint is raising the credit score bar for potential subscribers, analysts say, and the new standards will exclude some customers who previously would have been able to get a phone. There's also less room for profit now that Apple's (AAPL) iPhone is the star in Sprint's lineup. The iPhone offers a lower profit margin for retailers compared with that of comparable Android phones.

Other factors hurting results at RadioShack included discounting and low margins earned on smartphones.

The company reported a fourth-quarter profit of $11.9 million, or 12 cents a share, down from $57 million the previous year. Some analysts had expected 11 cents a share. Net sales rose 5.9% to $1.39 billion -- about what analysts had expected. The company had previously forecast a profit of 11 cents to 13 cents per share on $1.39 billion in revenue.

"Despite our gross margin challenges, we have a strong balance sheet, are making progress in our mobility business, and expect to advance our business improvement initiatives in 2012," Jim Gooch, RadioShack's CEO, said in a release.

Analysts at Wedbush kept a "neutral" rating on the stock and gave it an $8 price target. The stock plunged nearly 8% Tuesday to close at $7.26. The analysts said their price target reflects an 8-times forward multiple of their full-year earnings estimate of $1. That's well below even the low end of the stock's historical range of 10 to 18 times forward earnings, the analysts said, noting the chain's declining profitability, core weakness, and increasing competition.

There was some good news in the quarter, however. Same-store sales rose 2.2% on tablets and mobile phones with AT&T (T) and Verizon Wireless contracts -- in-line with RadioShack's forecast. Revenue was dragged down by declining sales of Sprint and T-Mobile handsets.

Gross margin took a dive to 34.8% from 41%, which RadioShack largely blamed on low-margin smartphones and other mobile devices accounting for a larger share of sales, in addition to increased holiday sales.

RadioShack shares are down 25% this year. 

More from Benzinga

Feb 22, 2012 9:04AM
Don't shop there much but they are handy for buying replacement batteries for watches, car remotes, etc. Conveniently located and always had the right battery in stock.  But the profit on those $6 items sure won't keep them afloat. I found they also had better cell phone prices and more phone choices than the ATT or Verizon stores had. They also may have too many stores, they seem to be all over. Another one will probably bite the dust.  
Feb 22, 2012 12:46PM
there's still downside in this stock believe it or not!
Feb 22, 2012 12:01PM
Radio Shack needs to raise their prices.
Feb 22, 2012 11:47AM
Aw man, the Shack is down? I'm stunned.

Several years ago The Onion did a great piece on the Shack's CEO being completely stunned that the company hadn't tanked. It was hilarious.

The Shack is totally getting the shaft. Just like "The City" (Circuit City) before it.
Feb 22, 2012 11:43AM
I'm surprised RadioShack made it THIS far!

Feb 22, 2012 11:42AM
How is this company still in business? Who shops there? I don't
Feb 22, 2012 11:42AM
RadioShack needs to go out of business already...
Feb 22, 2012 12:11PM
Bless 'em. The staff are so attentive when you go in the store nowadays. It's because they're bored most of the day.
Feb 22, 2012 11:46AM
@Eddie Staley, I don't think anyone does, hence their huge profit decrease ;)
Feb 22, 2012 11:52AM
It's amazing how much of a powerhouse Apple has become. Everything that stands in its way gets demolished without a second thought. iPhone's appear to be not only the star in Sprint's line-up, but all line-up's in general. 

This article was really eye-opening in terms of how RadioShack fairs in the future. Its downfalls are reminiscent of those experienced by Blackberry maker, RIM. Transition regarding mobile phones this year and last has been non-stop and totally disheartening for the aforementioned companies.

Hopefully, these once dominant companies can pick themselves up and fight their way back to the top - but it could take a miracle. 
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