RadioShack Gets Back on Track

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Consumer-electronics retailer RadioShack (NYSE: RSH) appears to have finally stopped the bleeding. But can it make a full recovery?

Shares of RadioShack hit bottom last summer after investors pretty much gave up hope that sales, profitability, and earnings trends would improve. But a new CEO was appointed last July, and the stock has quickly rebounded to nearly $30. It seems turnaround specialist Julian Day is for real, and his past restructuring successes at Safeway (NYSE: SFY) and Kmart, now part of Sears Holdings (Nasdaq: SHLD), were no fluke.

Turnaround improvements that began last quarter continued into RadioShack's fiscal first quarter, for which results were announced this morning. The cost-cutting moves continued, and the combination of job cuts, lower advertising, closed stores, and better inventory management contributed to a fourfold jump in earnings as margins improved across the board. The company also bought back shares, reduced debt, and improved free cash flow generation.

Small problem, though -- sales continue to plummet. First-quarter net sales fell nearly 15%, and same-store sales dropped a dreary 9.5%. RadioShack is still paying for past mistakes, too: Management was up against tough comps, since last year's sales focus was on promotional spending to move unappealing products off store shelves.

More than 500 stores have been closed in the past year, but RadioShack remains too dependent on sales of wireless phones and related subscriptions. Nearly every retailer imaginable hawks phones, be it Best Buy (NYSE: BBY), Circuit City (NYSE: CC), or service providers such as Sprint Nextel  (NYSE: S) and AT&T (NYSE: T).

So while cost-cutting moves are clearly a welcome improvement, I don't see much evidence that sales will recover anytime soon. Given that shares have now more than doubled in the past year, I'm thinking the only way investors will make money going forward is if the top line starts marching upward. In that respect, there may be better opportunities for Fools to shop for.

For related Foolishness:

• Warren Buffett's Priceless Investment Advice
• Game Over in Electronics Retailing
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.