FOOL PLATE SPECIAL
Another quarter brings another warning from electronics hub RadioShack. The chain that could do no wrong as it built out its "store-in-a-store" model is now paying the price of serving too many masters as margins are getting crunched and sales growth is flatlining. The alliances investors once cheered are hacking at the 'Shack.
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Since October, shares of RadioShack (NYSE: RSH) have fallen by 63%. We're talking RadioShack, now. You know, the all-weather small box chain with 7,200 locations -- one of them just a few doors down from you -- that was always there when you needed a longer phone line or a fresh pair of AA batteries. But the company wanted more, and wound up getting more than it bargained for. Last month the company warned that it would miss its first-quarter projections. This week, it was the second quarter that would fall short. What's an investor to do? You've got questions. We've got answers. Turn up the Radio Over the years it sold or spun off its non-electronics components. Finally focused? Hardly. It went on to amp up its RadioShack offerings in 1992 when it launched Incredible Universe and Computer City. They were the anti-RadioShacks: Huge superstores that were destinations rather than local convenience outlets. They both faltered. Computer City was bought out by CompUSA while Incredible Universe collapsed into its own black hole. Deep Thoughts by a Jacked Tandy Selling everything from wireless to long-distance service, no one blinked when the company swallowed cable installer AmeriLink in 1999. After all, that only meant more video entertainment and Internet access offerings to sell. RadioShack attack With sales growth drying out, the company is also beginning to feel the bottom-line pinch. Things were different when RadioShack was able to score juicy margins from self-branded components. Now the strategic alliances have two mouths to feed, and in contested, commoditized areas like wireless communication, margins were already getting crushed. While the company expects the situation to improve through the second half of the year, it's now looking at 2001 earnings from operations falling by 10% off the $1.84 a share it produced last year. The shares haven't traded this low since January of 1999, when the company was still known as Tandy. But going retro isn't the solution. During times of past stagnancy, the company has resorted to new concepts and ambitious alliances. Let's hope the company tries something different this time -- you know, like focus?
While the first RadioShack store opened in 1921, it wasn't until the leather-proficient Tandy clan bought it 42 years later that the electronics retailer began angling towards ubiquity. Even then, the parent company was juggling concepts. From nurseries and leather goods to retail chains like Pier 1 (NYSE: PIR) and Bombay Company (NYSE: BBA), Tandy had an eclectic mix of properties.
RadioShack, however, was radiant despite the rumble around it -- but it wouldn't last. In a move to cash in on its widespread visibility, the company began to form strategic alliances with companies like Sprint (NYSE: FON) and Verizon (NYSE: VZ). As small as the RadioShack boxes appeared, the "store in a store" concept took off.
The moves produced investor enthusiasm and even occasional double-digit comp gains, but also helped pave the way for today's weakness. RadioShack was no longer a safe haven with a consistent trickle of home theater enthusiasts and ham radio hobbyists. It was now susceptible to everything from the roughed-up wireless market to the competitive mood swings of long-distance and broadband.
Rick Aristotle Munarriz is not fond of the small charged bursts that happen when you take your tongue to an active 9-volt battery. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.
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