RadioShack Shares Are No Cut-Price Bargain

Is RadioShack the next Circuit City?

Jun 10, 2014 at 7:00PM

U.S. stocks were unchanged on Tuesday, as the benchmark S&P 500 was down by just 0.02% and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) rose by 0.02%. The technology-heavy Nasdaq Composite Index (NASDAQINDEX:^IXIC) gained 0.04%.

One company that can only wish for a flat performance today is struggling electronics retailer RadioShack (NYSE:RSHCQ), which reported dismal results for its fiscal first quarter, which sent the shares down 10.4%. While bottom-fishers and short-term traders may see opportunity in the share price drop (indeed, the shares are up 2% in after-hours trading), I would advise investors to give this stock a wide berth.


RadioShack's numbers for its quarter ended May 3 tell a tale of decline and despair. The adjusted loss from continuing operations of $0.98 missed Wall Street's expectations by a wide margin and is, in fact, below the lowest analyst estimate. Revenues of $737 million fell 13% year on year, also missing the consensus estimate, but in line with the 14% drop in comparable-store sales.

While the company has refinanced its long-term debt maturities out until 2018, there is growing concern -- legitimately so -- about the company's liquidity position. RadioShack says it has sufficient cash to last 12 months, but that's based on the assumptions that it can boost sales in certain areas and raise margins. Neither of those assumptions looks self-evident -- or even likely, in my opinion.

In explaining the disappointing sales and gross margin performance in the quarter, CEO Joseph Magnacca told investors and analysts that "our mobility business was weak" because of "lackluster consumer interest in the current handset assortment and increased promotional activities across the industry including the wireless carriers." However, the company's fundamental problem isn't cyclical -- it's largely the result of having no competitive advantage in a market that is undergoing a secular shift in consumer buying habits.

In 2012, Alan Wurtzel, a former chief executive officer of electronics retailer Circuit City and the son of the company founder, wrote a book, Good to Great to Gone, to understand why the company was forced to declare bankruptcy in 2008 before being liquidated the following year. Wurtzel concluded that Circuit City management had a turnaround plan for the company, but they were unable to implement it in the face of pressure from Wall Street, as investments that might have secured the company's survival would have had an adverse short-term effect on the stock price.

His conclusion, as told to The Wall Street Journal in 2012: "I don't think you can turn around a failing company in the full glare of publicity." His recommendation is, therefore, that ailing businesses go private before attempting a turnaround.

In the case of RadioShack, the company has already faced resistance from lenders to its plan to shutter 1,100 stores, or roughly a quarter of its 4,250 U.S. store count. Without their agreement, RadioShack can close only 200 stores, an initiative the company is proceeding with this year. That is likely to be too little, too late. The U.S. consumer simply doesn't need a RadioShack at its current size -- if he or she needs it at all.

In Circuit City's case, no margin of safety was enough to protect equity investors. Ask yourself: What is the difference between Circuit City and RadioShack? I think it's likely that the latter will ultimately share a similar fate to the former -- chapter 11 bankruptcy at least, even if it is somehow able to emerge as a slimmed-down version of itself. This is no time to go shopping for RadioShack shares.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple


Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information