Monday, August 16, 1999

Tandy Corp.
Phone: 817-415-3730
Website: www.tandy.com
Price (8/13/99): $43 13/16


RadioShack attack -- the antidote to the electronics superstore is back. Tandy, RadioShack's parent company, once wanted to emulate the large-store competition. Possibly losing focus of its flagship brand in the process, the company rolled out Computer City and Incredible Universe.

Computer City seemed like a fit competitor to CompUSA (NYSE: CPU). It apparently fit so well that when the chain began struggling, CompUSA was more than willing to convert them to CompUSA locations. Incredible Universe was the more ambitious project. These retailing behemoths carried appliances, home electronics, music, and home theater -- there was even a center stage with regularly scheduled entertainment and a fast food concession area. The consumer electronic supercenters were so huge that they made Best Buy (NYSE: BBY) and Circuit City (NYSE: CC) look like, well, RadioShacks.

Unfortunately, while the Universe was wide it proved to be far from Incredible. Tandy had to do away with its once generous expansion plans and eventually closed the existing locations. With Computer City's population at zero and Incredible Universe sucked into the black hole of failure, Tandy was back to RadioShack.

The renewed focus has meant revamped stores that have won back the hearts of patrons who had taken the small outlets for granted, with the stores recording double-digit same-store sales growth every single month this year. Since March, even the worst of months still represented a 15% comp hike. With RadioShack's impressive momentum, Tandy shares have turned up the volume.


With more than 7,000 stores and dealers, RadioShack estimates that there is a store within five minutes of the home or workplace of 94% of the domestic population. Texas-based Tandy claims that it sells more wireless telephones, telecommunications products, and electronic parts and accessories than any other retailer.

Last month the company completed its acquisition of Amerilink.


Income Statement
12-month sales: $4113.1 million
12-month income: $161.8 million
12-month EPS: $0.77
Profit Margin: 3.9%
Market Cap: $8968.4 million

Balance Sheet
Cash: $43.7 million
Current Assets: $1200.6 million
Current Liabilities: $741.1 million
Long-term Debt: $260.4 million

Price-to-earnings: 56.9
Price-to-sales: 2.2


RadioShack has come a long way from the strip mall technomagnet it was when I was growing up. Back then RadioShack was a place to go for batteries, tapes, audio/video cables -- anything but those misfit Tandy computers.

Today's RadioShack is much more. For starters, the Tandy PC line is dead. Compaq (NYSE: CPQ) now provides the exclusive RadioShack computers. Communication trends towards wireless have also played into the little-box convenience for selling cellular service. Sure, you can still get watch batteries and budget-minded electronic novelties at RadioShack, but it has become a more complete one-stop shopping destination.

Last year it fully divested itself of Computer City. Seeing how CompUSA continues to struggle in that niche speaks volumes in favor of Tandy's executive decision. While Best Buy and Circuit City are on a tear since the demise of Incredible Universe, in concept and in share price, the concept was simply too bulky and demanded excitement energy levels that were ultimately unsustainable.

A focused company is often a worthwhile investment. When Tandy was free to concentrate on its 7000-unit gem, sales at the store level soared. Coincidence?


Just as things were rolling along splendidly with Tandy focused on RadioShack -- bamm -- the Amerilink acquisition happened. Why Tandy announced it would purchase the cable installer in May might be a mystery to those who only know the RadioShack of old.

As Tandy has discovered with the success of selling wireless telephone plans, residuals can be a wonderful thing. Rather than a one-time profit on say a VHS tape multipack, a residual deal will find RadioShack receiving a portion of future cellular bills in perpetuity.

That is what the company is hoping to lock into with Amerilink. Home connectivity is more than a catch phrase. For a chain like RadioShack with so much neighborhood exposure, it's an opportunity to cash in on the trend towards video, voice, and data home services.

While Tandy paid out a juicy premium for Amerilink (ultimately more than twice what the shares were originally fetching), and the deal will be dilutive to near-term earnings, the blend of revenue and residual streams makes Tandy an interesting -- and yes, still focused -- company. Earnings are expected to bounce back to $1.44 per share this year and $1.69 for the year 2000. By then, who knows how much of your monthly pursuits RadioShack will be nibbling on?

--Rick Aristotle Munarriz

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