RadioShack loses $63 million in 4th quarter, hit by falling mobile sales

Posted Tuesday, Feb. 26, 2013  comments  Print Reprints
A

Have more to add? News tip? Tell us

RadioShack, punished by lower mobile phone sales, lost $63 million during its fourth quarter, compared to a $12 million net profit for the same period the year before, the Fort Worth-based retailer said Tuesday.

But the loss, which works out to 4 cents a share, was not as bad as the 6 to 12 cents loss predicted by analysts. Wall Street, digesting the results and hearing RadioShack's new chief executive for the first time in a conference call express optimism for the chain's prospects, reacted favorably. Its stock [ticker: RSH] rose more than 3 percent in morning trading.

Continuing poor results likely contributed to the removal in September of CEO Jim Gooch, after serving only 16 months. Earlier this month, RadioShack named Canadian-reared Joseph Magnacca, a former Walgreen executive with considerable merchandising experience, to replace Gooch, a career financial-side specialist.

In a conference call with stock analysts, Magnacca said that he's committed to turning around a chain with a 90-year, iconic image, considerable brand equity and thousands of stores, but neither he nor Chief Financial Officer Dorvin D. Lively would predict how long it would take.

And Lively cautioned several times that the next few quarters would remain challenging to RadioShack, once called Tandy Corp.

Magnacca disclosed that he expects to submit a turnaround plan to the board in 100 days from the time he started. He also said that profit growth was to be found in the chain's "signature" business including branded and private-label headsets and other accessories -- not cellphones -- and that both social media and mass media would be used to drive traffic to its stores.

The executives conceded that RadioShack had lost its place as a leader when it came to serving the do-it-yourself electronics consumer, and had become a follower. They spoke of adopting the chain's core strengths to a very different environment from the days when fat RadioShack catalogs of components and gadgets included more than 60 percent in-house brands like Realistic.

Still, Magnacca said that after only 12 days in Fort Worth, he is confident that the current team could "return this great company to a position of prominence as a retailer of choice to customers every day."

While disclosing negative results, Lively noted improvements in gross margins on items other then cellphones.

"The most significant contributing factor to the decline in our performance was the post-paid wireless business which saw a decline in transaction volume across the year, combined with a lower margin rate," Lively said in a statement.

But the CFO said progress was made in some areas.

"The gross margin rate for all of our business, excluding mobility, was flat with 2011 with significant improvement in our consumer electronics business," Lively said. "We have improved and strengthened our high-margin signature platform, which generated sales growth in each quarter of 2012. Additionally, our no-contract phone and tablet businesses generated sales and gross profit improvement."

Sales at stores open at least a year -- a key retail indicator -- dropped 7 percent. Overall revenue also fell by 7 percent, to $1.3 billion from $1.39 billion.

"Importantly, we have taken a number of significant steps to better position the company for the transformation of our business," Lively said, noting refinancing and the dropping of money-losing Target Mobile kiosks.

While the kiosks never cannibalized business from RadioShack's own stores, they were never profitable, he said. As previously announced, all will be shut down by April 8.

"Our financial position and balance sheet are strong, and we had liquidity of $926 million at year end," he said. "Looking ahead, we will be focused on stabilizing the profitability of our business as well as our growth initiatives."

With the hiring of Magnacca on Feb. 11 and other executives, Lively added, "we now have a strong management team in place focused on rebuilding the business and leading the company into the future."

RadioShack's new top team includes Huey Long and Troy Risch. Long, executive vice president for strategy and "consumer insights" and a distant relative of the late Louisiana governor, is a 22-year retail veteran who last worked as general merchandise manager for Walmart-owned Sam's Club and previously held the same position at Amazon. Risch worked 19 years at Target, where he rose from store manager to executive vice president for stores. Both joined Jan. 2.

Analysts reacted cautiously, but positively.

"On the positive side, the higher-margin signature category is growing and the exit of the Target kiosk business should improve profitability," Thomas Bradley of KeyBanc Capital Markets wrote in a research note. "However, the consumer electronics category remains under pressure from secular trends and share loss to Amazon. The wild card is the mobility business, which has been under significant pressure in recent years."

"Overall, we are optimistic that new CEO Joe Magnacca can help improve merchandising and bring stability, if not growth, to the wireless business. While (the stock) is inexpensive, we are lowering our estimates and recommend investors stay on the sidelines until we see further evidence of stabilization. We maintain our HOLD rating at this time." The note disclosed that KeyBanc expected to do some banking business with RadioShack this year.

Barry Shlachter, 817-390-7718

Twitter: @bshlachter

Looking for comments?

We welcome your comments on this story, but please be civil. Do not use profanity, hate speech, threats, personal abuse, images, internet links or any device to draw undue attention. Our policy requires those wishing to post here to use their real identity.

Our commenting policy | Facebook commenting FAQ | Why Facebook?