There's a saying in investing that goes, "You know what they call being early? Wrong!" You're so far ahead of the curve on your call that you totally miss what's happening now. That's true, but sometimes it's also called "just being early," and I think that's the case with RadioShack (NYSE: RSHCQ ) .
Losing its way
Three years ago I asked whether the electronics retailer was witnessing the last lump of coal that would be put in its Christmas stocking. At the time, sales of stand-alone GPS devices from Garmin and TomTom were cratering as telecoms and auto manufacturers were developing integrated units that would make handheld devices obsolete. Worse from RadioShack's perspective was the decline in the sale of batteries. What?!
It ended up having to rely upon the growing popularity of smartphones for subsistence, yet like another fading electronics retailer, Best Buy (NYSE: BBY ) , it's seeing strong demand for them but at lower margins. Gross profits were down 36% last quarter to $360 million due to smartphones' carrying tighter margins than feature phones.
Finding their way online
Just as Best Buy has seen its customers flee to the comfy confines of the online marketplace, The Shack's customers also prefer the virtual shopping experience. And as the start of the Christmas shopping season at Thanksgiving indicated, the trend shows no sign of abating. Online Black Friday sales surged 26% the day after Thanksgiving, crossing over the $1 billion mark for the first time ever with more than 57 million Americans powering up their computers and visiting e-commerce sites instead of trekking out to the malls.
RadioShack had another disappointing quarter of falling same-store sales, with comps coming in 1.6% lower than in the year-ago period, which itself was down 4% from 2010, losing out to Amazon.com.
The market analysts at comScore say Amazon was the most visited destination, followed by Wal-Mart (NYSE: WMT ) in second place, and Best Buy coming in a surprise third. Rounding out the top five destinations were Target (NYSE: TGT ) and Apple (NASDAQ: AAPL ) .
While it will likely report greater fourth-quarter comps as it has traditionally done, it's hard to argue with the fact that its customer base is evaporating. At the same time, inventories are on the rise -- for two quarters in a row despite its having closed 70 stores last quarter -- and that was even before the iPhone really hit its stockroom.
Ready for a resurrection?
Three years ago I highlighted four companies I thought were doomed to the dustbin of history: RadioShack, Sears Holdings, movie rental giant Blockbuster, and bookseller Borders. The last two eventually bit the dust and I'd say the first two are well on their way.
I just don't think RadioShack can fight the tide much longer, but rather than it going bankrupt like Blockbuster and Borders, I foresee someone eventually buying it out. While a deuce for its stock seems cheap, there is no immediate buyer on the horizon, and with business declining there's nothing to stop its shares from continuing their slide lower.
Besides, bargaining from a position of weakness doesn't give it much leverage in asking for a premium, so I recommend avoiding RadioShack's shares. It may live yet to see another Christmas, but that only means I'm early in my prediction, not wrong.
While I've pretty much written off any chance for RadioShack's revival, the brand does have an 80-year history and has survived numerous technological disruptions during that time. The question is: Can RadioShack survive in today's new retail environment? To help answer that question, The Motley Fool has compiled an in-depth premium report covering all the opportunities, risks, and specifics that every investor should be aware of before deciding whether RadioShack is a buy or a sell. Simply click here now to claim your copy and start reading today.