New CEO optimistic RadioShack can rebound

Posted Tuesday, Feb. 26, 2013  comments  Print Reprints

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Joe Magnacca made his first public statements Tuesday as RadioShack's new CEO, telling stock analysts that he's bullish on the 94-year-old company, citing its iconic brand and thousands of stores that dot the national landscape.

Like his predecessors, Magnacca's maiden financial teleconference was full of bad numbers. Punished by lower mobile phone sales, RadioShack said it lost $63 million during its fourth quarter, compared to a $12 million net profit for the same period the year before.

The loss, which works out to 4 cents a share, was not as bad as the 6 to 12 cents predicted by analysts. Wall Street, digesting the results and hearing RadioShack's new chief executive express optimism for the chain's prospects, reacted favorably, however slightly. Its stock [ticker: RSH] rose fractionally, gaining a penny a share to finish at $3.06.

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

For the full year, the Fort Worth-based consumer electronics chain recorded a net loss of $139 million, or $1.39 per share, which includes a non-cash valuation allowance for deferred tax assets.

That compared to net income of $72 million the previous year.

The mounting poor results likely contributed to the board's removal in September of CEO Jim Gooch, who had served in the top job for only 16 months. Earlier this month, RadioShack's board named the Canadian-reared Magnacca, a former Walgreen executive with considerable merchandising experience, to replace Gooch, a career financial-side specialist.

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

If there was a bright spot in the quarterly results, Chief Financial Officer Dorvin D. Lively supplied it when he spoke of higher profits in core goods like wireless accessories, headphones, portable speakers and private-label products.

"We have improved and strengthened our high-margin signature platform, which generated sales growth in each quarter of 2012," Lively said. "Additionally, our no-contract phone and tablet businesses generated sales and gross profit improvement."

Analysts at Janney Capital Markets Research might have summed up the mood by headlining a research note: "New Management, Same Issues, But Maybe Stabilizing Margins."

Magnacca disclosed that he expects to submit a turnaround plan to the board within his first 100 days. 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.

Neither he nor Lively would predict how long it would take to bring prosperity back to RadioShack. And Lively cautioned several times that the next few quarters would remain challenging.

The executives conceded that RadioShack had lost its place as a leader in serving the do-it-yourself electronics consumer and was relegated to follower status.

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.

Lively noted the company's decision to jettison the 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. Janney figured it hurt RadioShack's proftability by about $37 million, 20 to 25 cents last year

"Our financial position and balance sheet are strong, and we had liquidity of $926 million at year end," Lively 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 -- who had served as the interim CEO -- 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 assassinated, populist Louisiana governor, is a 22-year retail veteran who last worked as general merchandise manager for Wal-Mart-owned Sam's Club and Amazon. Risch worked 19 years at Target. 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."

While the 2013 first quarter has gotten off to a slower start and Magnacca's new strategy will more likely be implemented in the second half of the year, Janney analysts predict improved gross margins this year.

"Maybe this, combined with a new management team that comes with strong resumes and from what we gather well-regarded results, can begin to stabilize and ultimately start growing the business," they said.

Barry Shlachter, 817-390-7718

Twitter: @bshlachter

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