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Why RadioShack Corporation (RSH) Earnings Will Stay Stuck in the Red

RadioShack Corporation (NYSE:RSH) will release its quarterly report on Tuesday, and for investors who’ve seen the value of their shares decline by 85% since late 2010, good news has been hard to come by lately. Although the stock managed to dodge a bullet earlier this month when a scary rumor turned out to be an overreaction, RadioShack Corporation (NYSE:RSH) earnings are locked firmly in the red, and it’s unclear when the company will start making money again.

RadioShack Corporation (NYSE:RSH)RadioShack Corporation (NYSE:RSH) is far from the only company in the electronics-retail space to suffer big problems lately, as the rise in online competition has made bricks-and-mortar store locations increasingly inefficient. Can the company survive in the cutthroat environment that’s emerging? Let’s take an early look at what’s been happening with RadioShack over the past quarter and what we’re likely to see in its quarterly report.

Stats on RadioShack

Analyst EPS Estimate ($0.24)
Year-Ago EPS ($0.21)
Revenue Estimate $814.56 million
Change From Year-Ago Revenue (14.5%)
Earnings Beats in Past 4 Quarters 1

Source: Yahoo! Finance.

Will RadioShack earnings ever turn positive?

Analysts have had increasingly negative views on RadioShack Corporation (NYSE:RSH) earnings in recent months, widening their June-quarter loss estimates by $0.07 per share and now projecting 75% greater losses for the full 2013 year. Yet the stock has largely held its own at least recently, with shares roughly unchanged since mid-April.

Right after the company reported its first-quarter results, RadioShack Corporation (NYSE:RSH) looked like it might be ready for a turnaround. In an attempt to take advantage of the value of its commercial real estate and its small-footprint stores, CEO and turnaround specialist Joe Magnacca envisioned creating new lines of private-label products as well as providing more do-it-yourself goods to help customers with specific projects. Big-box rival Best Buy Co., Inc. (NYSE:BBY) has looked at trying to shrink the size of its stores, indicating the desirability of relatively small storefronts to focus on high-margin items for which customers don’t want to wait for online delivery.

Yet competition is a big problem that RadioShack faces. Focusing on mobile is a logical thing, but carriers have boosted their retail-store presence in an effort to cut out the middleman. With Sprint Nextel Corporation (NYSE:S)‘s looming deal, it could easily seek to bolster its retail presence in efforts to boost growth and compete more strongly against its own rivals AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), joining the other two big domestic carriers in pressuring RadioShack’s mobile business.

The latest whipsaw for RadioShack investors came earlier this month, when reports that the company had hired financial advisors raised fears that the company could potentially be having liquidity problems and led some to conclude that a bankruptcy filing might be imminent. RadioShack quashed those rumors by clarifying that it had sought assistance in strengthening its balance sheet, helping the stock to recover all the ground it lost on the rumors. Still, as long as the company keeps losing money, RadioShack’s balance sheet will necessarily deteriorate over time until a turnaround is successful.

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