Fear RadioShackasaurus

RadioShack (NYSE: RSH  ) looked like a real winner, judging by the 21% increase in its stock price in yesterday's trading -- but is it really? You might have guessed from my headline that I suspect its best days are behind it.

True, RadioShack's fourth-quarter net income increased 19.5% to $101 million, or $0.77 per share. That's an impressive figure for a company that's been struggling over the years, but far less so when you ponder how total revenue decreased by 6.5% to $1.36 billion, and same-store sales dropped 6.7%. (Many of the elements present in yesterday's results have been the case for quite some time -- check out this Foolish take from last July, when RadioShack's increasing profits/dwindling sales refrain was the same.)

RadioShack's on a cost-cutting tear -- for example, it lowered SG&A expense significantly by reducing headcount at its headquarters and tinkering with work schedules in stores. Although Wall Street types tend to love penny-pinching turnarounds, there's only so much cutting that can be done before hitting bone. Without jumpstarting sales, it's just a short-term boost that can eventually start doing serious damage.

(Granted, I ought to give RadioShack some credit where it's due; the company's cash balance was $510 million at year-end, and it generated $334 million in free cash flow.)

Still, I'm not confident in RadioShack's ability to provide sustainable, long-term growth, especially with competitors like Best Buy (NYSE: BBY  ) and Circuit City (NYSE: CC  ) , and discounters like Wal-Mart (NYSE: WMT  ) . RadioShack may be a convenient place to pick up odds and ends like wires and cables, but it's got a necessarily limited selection of bigger ticket items that are available elsewhere. And of course, cell phone upgrade cycles -- and the inevitable downturns -- have often made RadioShack an inconsistent performer.

The "retro" flavor to the RadioShack brand also indicates a mature retailer with little prospect for growth in its store base; in fact, it's had to close stores down. It's a bit tempting to view RadioShack as a remnant of a bygone era. (Jurassic, perhaps?)

I have similar feelings about retailer Sears Holding (Nasdaq: SHLD  ) , which seems like yet another retail monstrosity from the past. (Granted, maybe "RadioShackasaurus" is a bit cuter -- it never bred with another large, desperate retailer.) Although such retailers may not be on the brink of an abrupt "mass extinction event," I'm still not convinced they can thrive very well in the current climate.

Check out some historical RadioShack stories:


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