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RadioShack Shares Got Crushed: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electronics retailer RadioShack (NYSE: RSH  ) were radioing in an S.O.S. today as they fell as much as 30% in intraday trading after a disappointing announcement from the company.

So what: It wasn't a terrible earnings release, but it was close. The company preannounced fourth-quarter results and investors did not like what they saw. Promotions during the holiday season and softness in its business around Sprint Nextel (NYSE: S  ) phones were cited as key issues as the company told investors that earnings per share for the quarter will likely come in between $0.11 and $0.13. Wall Street analysts were expecting $0.37.

Adding to the disappointment was the additional announcement that the company is turning off the share-repurchase spigot.

Now what: As my fellow Fool Rick Munarriz pointed out, sales were not the big issue -- sales were actually up 6%. However, gross margins slipped from 41% to 35%, reflecting the lower profitability of the stores' sales mix. The question for RadioShack investors to ponder going forward is whether -- as Rick believes -- the lower profitability is here to stay, or whether this is a hiccup and management can fatten the bottom line back up in the quarters ahead.

Want to keep up to date on RadioShack? Add it to your watchlist.

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The Motley Fool owns shares of RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 31, 2012, at 4:23 PM, Jab69 wrote:

    Funny how people react....This stock shouldn't have fallen so much and now is the time to buy buy buy

  • Report this Comment On January 31, 2012, at 6:08 PM, cssmitty wrote:

    Really -buy? I'm not so sure. The Fool has made a lot of bad recommendations in the past 12-18 months as far as I can tell.

  • Report this Comment On January 31, 2012, at 6:27 PM, TheDumbMoney wrote:

    I wouldn't touch this stock with a ten foot Radio Shack antenna.

    This company needs a complete overhaul, starting with a name change (I'm not kidding) and total rebranding, as in, "hey, Bob, I think think I'm going to go down to Radio Shack, and pick up some (muffles), and then I'm going to go over to American Typewriter Co., and see about their ribbon pricing!"

    Imagine if Microsoft had called itself "DOS, Inc.," or if Apple hadn't dropped "Computer", or if AT&T still went by "American Telephone & Telegraph" company, which is what that acronym stands for. Are you frigging kidding me? How does a company called "Radio Shack" expect to remain relevant? Especially since it has generally terrible real estate, and small stores with low selection.

    I don't know what the solution is. "RS Corp." would be totally meaningless at first, but I think it might still be the best bet, particularly if they started with a few years of co-branding. AT&T at some point was totally meaningless, somehow AT&T invested that brand with meaning. HSBC somehow got invested with meaning.

    As it is, neither "Radio" nor "Shack" conjures anything particularly meaningful or relevant or positive. When I think of Radio Shack I think of geeks who aren't even cool enough to be computer geeks. This company is like a cruddier version of Best Buy.

    Two Words: Value. Trap.

    Buyer beware.

  • Report this Comment On January 31, 2012, at 9:13 PM, Raymondpoppy wrote:

    Most people don't even know that RS still exists. The fact remains that Sprint is the only U.S. carrier to offer new and existing customers the iPhone experience with unlimited data plans starting at $79.99 per month. Sprint has been recognized as a J.D. Power 2011 Customer Service Champion — one of only 40 companies to have earned this distinction this year. To qualify for inclusion on this elite list, the companies must not only excel within their own industry, but also stand out among leading brands in 12 major industries evaluated by J.D. Power and Associates.

  • Report this Comment On January 31, 2012, at 9:31 PM, TheDumbMoney wrote:

    More suggestions:

    --Gadget Shack

    --RS Electronics

  • Report this Comment On January 31, 2012, at 11:48 PM, Speachless wrote:

    While I agree with the post that the name could use some work, I am not as negative as some about the short or longer term prospects.

    Yes, Radio Shack will have to evolve. But it is already in the space that Best Buy and Target want to get to in terms of store size, footprint and locations. The staff generally know their stuff. Sales are up and margins are down. If sales were down and margins were down, then I would start running for the exit.

    The company remains profitable despite all the troubles detailed above. This may be the beginning of a long slow death march. But my guess is that this is a blip and solutions will be found by management that has managed this store to stay profitable for such a long time.

    I put my money where my mind is. I doubled down today. Maybe good money after bad, maybe a potential home run or at least 3 bagger.

  • Report this Comment On February 01, 2012, at 3:21 AM, Ares07 wrote:

    Some INSIDER INFORMATION for you guys ;-) although just turned in my 2 weeks and am going to find a job at my school. I would not recommend touching this stock with a 10 foot pole as dumberthanafool puts it. It may rise a bit in the next few days/weeks/months because it has dropped recently, but seeing that I work in one of the top districts (profit wise) I think my opinion/view has merit. This company needs a total overhaul and rebranding... ALONG with some consulting, because RSH doesn’t pay attention to consumer needs and don’t think out of the box. If you think asking for your phone number when selling batteries was bad, wait till you see what they are going to do "effective immediately" to quote upper management – which will chase away all the rest of the good associates who KNOW their product and electronics and are not clueless/brainless like most of the employee base. This company is going to self-destruct because they are asking the associates to do in every store will be impossible. RSH doesn’t realize why people come in – they hire/look for the wrong people(ones who don’t like to ask questions and just do without asking why, like me). This quarter, we are going to drive phones too hard – and by the time they realize their mistake, it'll be much too late. Sell what customers are willing to buy... we turn away too many people because customers are looking for something else(not in relation to phones). UNDERPERFORM

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Related Tickers

5/25/2012 4:01 PM
RSH $4.97 Up +0.14 +2.90%
RadioShack Corp CAPS Rating: **
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