March 4, 2014 was a bad day to own shares of RadioShack (NYSE:RSHCQ). After the consumer-electronics retailer announced results for the fourth quarter of its 2013 fiscal year, shares plummeted 17% to close at $2.25. Following news that the company's financial results weren't up to par and that a wave of store closures is ahead, is now the time to get out, or has the Foolish investor been presented with a prime buying opportunity?
Financial results fell through the floor
For the quarter, RadioShack reported revenue of $935.4 million. While this may seem like a large number, it represents a 22% decline compared to the $1.2 billion management reported in the same quarter last year and handily missed the $1.1 billion analysts expected. In its earnings release, the company attributed the falloff in sales to a 19% decline in comparable-store sales
If you thought the company's revenue looked dour, then its bottom-line performance was downright catastrophic. For the quarter, management reported that RadioShack's earnings per share came in at -$1.90. After factoring in adjustments, the situation still looks bad with a loss of $1.29, far worse than the $0.07 gain the business reported last year and significantly lower than the $0.14 loss per share analysts anticipated.
Making matters worse, the company announced in its release that it's planning to close up to 1,100 stores. This represents approximately 26% of the business' U.S. locations and 20% of all locations globally. Such a big move by management suggests that its own outlook for the company is terrible and that revenue will continue to fall. However, if successful, this strategic initiative may result is lower losses or possibly even gains moving forward.
How does RadioShack stand up to Best Buy?
Over the past few years, times have been hard for RadioShack. Between 2009 and 2012, the company's revenue hovered between $3.8 billion and $4.3 billion, while net income of $205 million was converted into a loss of $139.4 million. In 2013 though, business took a turn for the worse.
During the year, the company's revenue fell a whopping 10% from $3.8 billion to $3.4 billion. Just as during the recent quarter, the business suffered from declining comparable-store sales, which fell nearly 9%. Meanwhile, the company's net loss widened to $400.2 million.
Over this same time frame, rival Best Buy (NYSE:BBY) reported a sales decline of 15% from $49.7 billion in 2009 to $42.4 billion in 2013. This sales decline, after years of growth, came about because of a drop in business both domestically and abroad.
In terms of profits, the company's situation mirrors RadioShack's. Over the past five years, Best Buy's net income fell from $1.3 billion to -$249 million. Fortunately, since 2011, the company has seen its net loss improve from last year's $1.2 billion deficit, but the decline in sales suggests that management isn't out of the woods yet.
Right now, it's difficult to tell what the future holds for RadioShack. However, based on performance in recent years, the business isn't looking all that great. Aside from competition from larger rivals like Best Buy, management has an even greater challenge: overcoming companies like Amazon.com.
Since Amazon came to power as THE e-tailer, the business has chipped away at companies like RadioShack and Best Buy. If RadioShack can somehow find a way to stave off this competition, the returns for shareholders could be great. But if it can't build a moat, the company could go to zero. Hopefully, for the sake of shareholders, closing underperforming locations will reveal a business that is otherwise thriving and vibrant, but the odds look stacked against RadioShack.
Daniel Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.