FORT WORTH -- Shares of RadioShack Corp. lost more than a quarter of their value and fell to an all-time low Wednesday after the electronics retailer reported a $21 million quarterly loss and said it will suspend its dividend.
The red ink surprised Wall Street, which had expected a small profit. The stock (ticker: RSH) fell quickly, closing at $2.60, down $1.05 a share, or 29 percent.An increase in cellphone sales could not offset a 26 percent decline in other products, leaving same-store sales basically flat.Eliminating the 12.5-cent quarterly dividend will save the company about $50 million a year and help prepare for a debt payment due in August 2013, executives said. RadioShack has paid a dividend to shareholders for 25 years."We believe this approach will drive the best long-term outcome for our shareholders," said Jim Gooch, the company's chief executive.Analysts expressed concern about the company's future.Both Moody's and Fitch Ratings downgraded ratings on RadioShack debt, indicating a higher risk of default.Moody's said that RadioShack's business strategy "has not gained any traction" and that it expects the company's "lackluster operating performance and margin erosion" to continue.Fitch said its downgrade reflects "the significant decline in RadioShack's profitability, which has become progressively more pronounced over the past four quarters."RadioShack has a $375 million debt maturity due next August and plans to refinance half of that in coming months and pay down the balance with cash. The loss amounted to 21 cents a share for the quarter that ended June 30, compared with a profit of $24.9 million, or 24 cents a share, a year ago.Sales for the second quarter totaled $953.2 million, up 1.2 percent but below Wall Street's expectation of around $970 million. Analysts had predicted earnings of 3 cents per share for the latest quarter, according to a FactSet survey.RadioShack reported a 3.3 percent increase in sales of cellphones and accessories at its company-owned stores, but that resulted from selling lower-margin Apple iPhones. It was also not enough to offset the broad decline in sales of other consumer electronics. Gross profit fell to $360.3 million from $432.1 million a year ago.Profit margins from selling cellphones remain "under pressure," Gooch said."Overall, our business performed below expectations during the second quarter," he said. "We were disappointed in our gross margin rate performance, as the initiatives we have under way have not yet generated enough momentum to improve the trend. We've clearly had short-term profitability challenges."Gooch said profit margins should stabilize in the fourth quarter. RadioShack sells AT&T, Verizon and Sprint Nextel service plans.Besides its own stores, RadioShack sells cellphones in about 1,500 Target stores. It wants to start offering prepaid cellphones to customers there to boost business and better staff those kiosks during peak shopping hours. The company wants to raise awareness of those kiosks beyond Target's weekend advertisements."We're going to work diligently with them," Dorvin Lively, RadioShack's chief financial officer, told analysts. "Both sides remain very committed to this program. We expect this business to be profitable by the end of the year."RadioShack, which has 4,700 company-run stores in the U.S. and Mexico, will also soon launch an advertising campaign to "refresh" its brand and specify the cellphone plans it offers, Gooch said."In simple terms, we need to rebuild the consumer's knowledge of our brand, helping to better communicate the breadth of products and services we offer," Gooch said. "We need to do a better job of telling consumers all of the positives of the brand they will find when they visit our store."On the international front, RadioShack said that it plans at least 400 more stores in Mexico in the next three to four years and that it will expand into Southeast Asia and China.In June, the company entered into a joint venture with Hon Hai Precision Industry that will allow for growth in mainland China and Taiwan and Hong Kong.A store opened in Shanghai in May, and one will open in Malaysia in the third quarter, the company said. The company expects to open about 1,000 stores in 10 countries in the region.Lively said the company is focused on cutting costs at its downtown headquarters, where it has 1,200 employees, and spent $14 million less on capital expenses in the first half of 2012 than a year ago.The company did not say how those savings were made but did say that it hasn't ruled out store closings if it continues to struggle.RadioShack renews many of its leases annually."RadioShack has a history of effectively managing costs, and the company expects to continue to aggressively look for costs we can take out of the system. We will discuss specific plans when they are put into place," the company said."We believe that maintaining our customer focus in the stores is critical."The company said it had $580 million cash on hand as of June 30.The report includes material from The Associated Press.Sandra Baker, 817-390-7727Twitter: @SandraBakerFWSTHave more to add? News tip? Tell us
