Exclusive Update
Retail's tough. Retail that depends on an industry like mobile devices, in which suppliers have significant power, is tougher. Add in online competition, and management had better be on its toes to face the numerous challenges. For RadioShack (NYSE: RSH), is new management reeling from the numerous jabs or about to stage a counterattack?
Who is the new management?
New CEO Joseph Magnacca came from leading marketing and merchandizing at Walgreen, which should help RadioShack reform its image. When an analyst asked about Magnacca's personal relationship with the brand, he replied:
And while proper marketing will be key in transforming RadioShack, it's not the company's only issue, as the latest phone season has demonstrated.
Shortages to slow sales
After making mobile devices and accessories a large focus of the business, it's crucial that RadioShack at least perform well in that group of products. Unfortunately, mobility sales fell 8% last quarter and "postpaid units," the opposite of prepaid phones, fell 20%. One of the main reasons for this was an inability to capitalize on the new iPhone 5. The phone came out in September, but RadioShack found it difficult to keep a reasonable stock until December. Another reason was the Target Mobile business, which "generated losses since inception," and which RadioShack will be winding down by April 8.
What plans does RadioShack have for improvement?
Unknown plans
With Magnacca still finding his way around headquarters, no solid plan for the future is in place. Magnacca says that a short-term plan will be presented to the board in early April, and he'll be working on longer-term visions as well.
Based on product performance, RadioShack will likely focus on its "signature" products and prepaid mobile offerings. The signature product line that includes accessories and speakers is the company's highest-margin business, and one of the growing segments -- although only growing at 2% on the latest quarter. Its prepaid mobile line, which includes brands like Boost, TracFone, and Virgin Mobile, experienced a double-digit sales decline in the first half of 2012, and then rebounded with a double-digit sales increase in the second half of the year.
Fighting time
While plans to revitalize the business come into place, the fight to stay open continues. The company still has more than $500 million in cash and about $390 million in available credit, with $287 in debt coming due in August. Unfortunately, the company is free cash flow negative as of late last year, with the trailing-12-month figure at negative $110 million. If solvency comes into question, shareholders could be bruised and the company might halt any dramatic turnaround investments simply in order to survive.
There have been rumors of RadioShack becoming a takeover target, given its network of thousands of small retail locations and its depressed market value. When Googlewas said to be looking to open its retail stores, a rumor that has since been denied, RadioShack came up as a potential quick entrance into direct access to consumers. However, with branding issues and the legacy issues that a new owner would have to deal with, it would likely be just as easy for any potential acquirer to create its own retail chain.
Over one year, the stock is down more than 40%, and year to date, up 80%. These diverse returns show just how varied RadioShack's future could be -- but what is certain is that its current state won't last for much longer.
