Tandy's Not-Quite-A-Warning (News) December 17, 1999

Tandy's Not-Quite-A-Warning

By Dave Marino-Nachison (TMF Braden)
December 17, 1999

In a somewhat surprising announcement, Radio Shack operator Tandy Corp. (NYSE: TAN) today said same-store sales at the 7,000-outlet chain for the first half of December were "slightly below" the company's 8%-10% goal.

Tandy didn't provide much in the way of explanation, though news reports said the company wasn't able to stock enough low-priced computers or digital portable phones to meet demand, sending shoppers elsewhere for the hot holiday items. Shares of the high-flying stock tumbled today, losing more than 20% of their market value as of mid-afternoon.

Chairman and CEO Len Roberts tried to lessen the blow with the following comments: "Our planned advertising programs strengthen as the month progresses," he said in a statement, "and the week after Christmas is always important for the company. In fact, historically 55-60% of our monthly sales normally occur over the remainder of the month."

And Tandy still expects Radio Shack to post a double-digit sales gain for the fourth quarter and full year, so it's not as if 1998 is going to be a total bummer. So why did the market punish Tandy so harshly today?

Perhaps it's because guidance the company gave earlier this month suggested that all was copacetic heading into December. "Our sales momentum this year extended into November," Roberts said earlier this month, "with very strong Thanksgiving weekend sales that continued through the end of the month. As we look ahead to the all-important month of December, we remain confident that we have exciting products and promotions in place."

It appears that wasn't the case, though, and it's disappointing since this holiday season was widely expected to be a huge one for consumer electronics retailers like Radio Shack, as well as Circuit City (NYSE: CC) -- which announced fiscal Q3 results and the eventual successor for CEO Richard Sharpe, COO Alan McCollough, who'll take over in June -- and Best Buy (NYSE: BBY), featured earlier this week in the Fool.

Given the brevity of the company's press release, it's difficult to quantify the effect today's news will have on Radio Shack's performance for the quarter. No specific earnings guidance was issued, but investors certainly treated the announcement like an earnings warning today. Today's report is doubly troubling since Radio Shack, as detailed in this August Foolish Double, has been moving aggressively of late to modernize its offerings and get more in step with consumer spending habits in large part to help snipe customers from the superstore.

Still, assuming the company is being on the level, today's disappointment is more a reflection of problems with its suppliers then an indication of demand of shoppers, and that's something more easily addressed. In news reports, company officials suggested an ever-extending December sales sweet-spot means monthly revenues could actually rebound and even surpass expectations. If that's the case, today may represent a sweet-spot for investors as well. Full-month results are slated for release Jan. 6.

Related Links:
Radio Shack
Tandy Message Board
Fool News, 12/14/99: "Best Buy... Disappoints?"
Daily Double, 8/16/99, Tandy

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