The RadioShack Corporation (NYSE:RSH) homepage displays a few high-tech gadgets under the tagline “Let’s Play.” It’s focus on the higher-margin products was a highlight of the company’s earnings announcement this morning, with management pointing out that it was the sixth quarter of growth in its signature product line. What got less focus was that the business lost $0.53 per share — more than twice what analysts were expecting.
It wasn’t all bad news
I’m just kidding, it was pretty much all bad news. The stock initially popped a bit, based on higher-than-expected revenue, but reality quickly took hold of the market and dragged it back down. Overall, revenue was down, gross profit margin dropped, operating loss deepened, and the company lost $53 million. Comparable sales were up 1.6%, but the company had delved so deep into promotional territory that to have a fall in sales would have been shocking.
The result of the price-cutting drove down gross margin, which hit 37% this quarter compared to 40% a year ago. The company cut off dividend payments in 2010, but it’s continued to lose cash. This quarter, cash and equivalents dropped to a mere $432 million, no longer enough to cover its long-term debt commitments.
The strategy
While I’ve clearly thrown my hands up, management hasn’t. RadioShack Corporation (NYSE:RSH) has brought in an interim CFO from AlixPartners, a firm specializing in turnarounds. The company plans to continue its focus on its high-margin line, refreshing its stores, and generally buffing its tarnished image. The return to its glory days is going to take a while, management has said.
Maybe longer than it thinks. The company isn’t just competing against its own dark image; it has real brands to work against. Best Buy Co., Inc. (NYSE:BBY) is fighting its own uphill battle, but still maintains a sharper image than RadioShack Corporation (NYSE:RSH). While Best Buy Co., Inc. (NYSE:BBY)’s comparable sales dropped, the company had a range of successes including its mobile division, which had comparable sales growth of 7.4% year over year last quarter.
RadioShack Corporation (NYSE:RSH) is starting in a distant second — or third or fifth or 10th, depending on how you count — and it has a long, expensive road to travel if it wants to be back in the race. I don’t think the business can manage it, due to the weakness of the brand. I think the best investors can hope for is that the company gets a buyout offer. As cash reserves dwindle and sales continue to fall, the options open to RadioShack are quickly disappearing. It might be time to throw in the towel.
The article RadioShack Seems Sunk originally appeared on Fool.com and is written by Andrew Marder.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack.
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