Posted Thursday, Jul. 26, 2012
By Mitch Schnurman
mschnurman@star-telegram.com
As a retailer, RadioShack is struggling. As a stock buyer, it's an absolute disaster.
The company surprised Wall Street on Wednesday by reporting
a $21 million loss for the second quarter. But get this: RadioShack has spent -- and lost on paper -- 100 times more by buying back its stock in the past 12 years.
In effect, a $2 billion bet went bad.
The Fort Worth company has always been a big believer in repurchasing its shares in the open market. It generates a lot of cash, and when executives can't find productive ways to invest in the business, they usually believe their stock is a bargain.
Except that RadioShack has been a bust for long-term investors, starting with itself. On Wednesday, the price fell to $2.60 a share, an all-time low. To buy stock for its repurchase programs, RadioShack has paid $12.80 to $30.57 a share over the past decade.
Since 2000, the average price paid by the company was $24.33. So Wednesday's close represents a decline of 89 percent on paper, and the investment was huge.
Last year, RadioShack spent $113 million on its own shares. In 2010, it spent almost $400 million. Some years, such as 2006 and 2009, it didn't buy any shares. But in 2005, it spent more than $600 million on buybacks.
Since 2000, RadioShack has spent nearly $2.6 billion on its repurchase programs.
By comparison, it paid $448 million in dividends over the same period.
These figures were tallied from 10-K filings, and through the years, management has offered different explanations for the strategy. In 2011, the company recounted its progress and said that over the previous four years, it had improved margins, controlled costs and "returned excess cash to shareholders through share repurchases."
That's one way to spin it, except that shareholders didn't actually get much excess cash. Dividends rose, but not close to the $830 million that RadioShack spent on stock buybacks since 2007.
Here's an explanation from 2003: "We may continue to execute share repurchases from time to time in order to take advantage of attractive share price levels, as determined by management."
If only management had an eye for market timing. Warren Buffett supports buybacks in general, but only when the stock is selling at a material discount to its intrinsic value. And many repurchases fail that test.
"Many CEOs never stop believing their stock is cheap," Buffett wrote in this year's
letter to shareholders of Berkshire Hathaway.
In the early 2000s, RadioShack was led by Len Roberts, and he and his team were true believers in buybacks, too. But RadioShack's share price was pretty solid then, after it adjusted to the dot-com bust. And it held up well despite the recession that followed 9-11.
But it's been volatile and trending downward since 2006, when Dave Edmondson was
forced out for lying on his resume. Julian Day briefly lifted the price, but he and his successor, James Gooch, have been unable to devise a sustainable growth strategy.
When investors lost faith and the stock price began to fall, the buybacks made no sense.
In January, RadioShack
suspended its repurchases on the same day it reported disappointing results for 2011. Instead, Gooch said, the company would "reinvest in our business and return value to shareholders through our quarterly dividend."
On Wednesday, RadioShack said it was also suspending the dividend.
Those two reversals confirm what should have been obvious all along: Growing the company is the mission, not buying back the stock and paying dividends.
Mitchell Schnurman's column appears Sundays and Thursdays.817-390-7821Twitter: @mitchschnurman
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