Summary
RadioShack may be more appealing to speculators, but its appeal to long term investors should decline until the company proves it has the retail skill to grow and sustain top line sales.
Analysis
RadioShack reported better than expected quarterly profits driving share prices up about 7.7% according to the MoneyCNN.com. However, whether that’s good news for shareholders remains to be seen. In general, the market rewards company’s that improves margin and lowers costs, while improving sales. But that’s the catch; RadioShack’s sales didn’t increase for the quarter, but declined about 9.4%. More disturbing, the company’s comparable store sales declined 8.6%.
According to the company’s press release, the “negative sales trend in the Sprint post-paid wireless and related wireless accessory businesses [were] partially offset by [a] strong performance in both prepaid wireless phones and global positioning systems.” If RadioShack was just another company explaining a rough quarter that would probably be good enough description of events. But it isn’t and the dynamics of what’s happening at RadioShack are more complex.
In effect, after nearly 15 months of new leadership, the company continues to lose market share in both its electronics and wireless communication business. Margin rate and profitability were favorable because the RadioShack is bleeding sales faster in its high volume, low margin wireless segment than it is in its higher margin electronics business. If true, the company’s results are less indicative of a business in transition than symptomatic of a enterprise even more impaired.
In the intervening period since Day was appointed chief executive, there is little evidence of a sales and marketing turnaround. Development of new products, branded or otherwise, appears to be at a standstill, positioning of the business remains murky, and mall stores look even more shop worn and less relevant to consumers. While it was unrealistic to expect significant change in 2006, a lot could have been done to make the existing stores more inviting and the product more compelling. But, it didn’t happen.
With consumers already shopping for 2007 Christmas gifts, RadioShack’s product and in-store presentation appears little changed from last year which doesn’t reflect well on Day’s management team; regardless of better quarterly earnings. Now, RadioShack may be more appealing to speculators, but its appeal to long term investors should decline until the company proves it has the retail skill to grow and sustain top line sales.
