Despite some disappointing sales trends at RadioShack (NYSE:RSH), the company is currently broadcasting fourth-quarter earnings that will be better than its previous guidance. The stock had jumped nearly 8% in today's trading on the news, despite word that same-store sales had actually decreased. Should there be free love for a chain that last saw super-cool status in the '70s?
RadioShack said that it will surpass its previous earnings outlook for the fourth quarter. The numbers to beat currently stand at $0.67 to $0.70 per share. It also said that it will sport fourth-quarter free cash flow of $420 million, as opposed to the $310 million to $350 million previously projected. However, same-store sales dropped 1%.
One of the positive trends RadioShack's plugging are brisk sales of cell phones and accessories. (Anyone who's been in a RadioShack recently, knows the company provides cell phones through Sprint PCS (NYSE:PCS) and Verizon (NYSE:VZ)). These items enjoyed a 17% boost in sales in the quarter.
However, could this be a temporary windfall? It stands to reason that the new wireless portability law -- and a subsequent upsurge in wireless customer defections -- could have driven some cell phone shoppers to RadioShack. And while the law may result in a better outlook going forward just because more cell phone users might switch, it doesn't seem a boundless opportunity.
The company's press announcement illustrated signs that it wasn't the first place shoppers looked for a variety of items. Corded telephones seemed about as dead as disco, with sales down 18%. Radio and computer sales decreased 6% and 8%, respectively. Sales of home entertainment systems, a segment that includes satellite, fell 15%. (For more on RadioShack's satellite shift, check out last week's comment by Rick Munarriz.)
For these items and more, think bigger competitors with better or cheaper selections -- places like Best Buy (NYSE:BBY), Circuit City (NYSE:CC), or discounters like Wal-Mart (NYSE:WMT). Even RadioShack's small mall-based stores may be a hindrance, making anything but a new cell phone, an ink cartridge, or a pack of batteries seem a little too annoying to bear the labyrinthine trip to the car.
Despite the sunny good news about its fourth-quarter earnings -- also brought about by strong profit margins and cost cutting -- there may be some baggage to consider before investors shack up for the long term.
Does RadioShack remind you of Pong and Tandy? Or do you think RadioShack's a good investment? Broadcast your views on the RadioShack discussion board.
Alyce Lomax welcomes your feedback via e-mail.
