Gadget vendor RadioShack (NYSE:RSH) reports Q1 2006 earnings results tomorrow morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Nineteen analysts follow RadioShack, and they're not an optimistic bunch. Only one rates the stock a buy, two actually rate it a sell, and the other 16 all say "hold."
- Revenues. Little wonder. The analysts expect less than 1% year-over-year sales growth tomorrow, with $1.1 billion being the target.
- Earnings. And profits are predicted to fall by half, down to $0.17 per share.
What management says:
RadioShack is in the midst of a restructuring. According to a press release issued in February, the company anticipates that, between consolidating distribution centers, closing underperforming stores, and writing down slow-moving inventory, shareholders should expect somewhere between $59 million and $104 million in "one-time" charges over the next few quarters. These charges are on top of the $62 million in inventory writedowns we saw last quarter.
Also in February, CEO David Edmondson departed, to be replaced with interim CEO Claire Babrowski, a McDonald's alumna.
What management does:
Let's look at those writedowns again. As you can see from the chart below, they seriously dampened the firm's rolling gross margins last quarter. In Q4 2005 alone, they knocked 819 basis points off the firm's gross and contributed to its yearlong slide in gross, operating, and net margins.
|
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 | |
|---|---|---|---|---|---|---|
|
Gross |
50.2% |
50.3% |
50.2% |
50.1% |
49.4% |
48% |
|
Op. |
11.5% |
11.5% |
10.9% |
10.4% |
9.6% |
8.1% |
|
Net |
7% |
7% |
6.6% |
6.3% |
6.9% |
5.3% |
This Fool says:
Going forward, in addition to the charges RadioShack will be taking, investors should probably expect to see sales growth stagnate (at best) or actually decline (at worst). The company plans to close 400 to 700 company-owned stores, or 8% to 14% of its entire company-owned store count. RadioShack has not been clear on whether it also plans to reduce the number of its stand-alone kiosks or dealer outlets, which, combined, make up about one third of RadioShack's total points of sale. But even if those other sales points are untouched, and even if, as one presumes, the company-owned stores being closed are the underperformers of the chain, this scale of a shutdown is bound to reduce sales. The hope, of course, is that once the underperforming stores are gone, the remaining, stronger sellers will help get margins moving upward once more.
Competitors:
- Apple (NASDAQ:AAPL)
- Best Buy (NYSE:BBY)
- Circuit City (NYSE:CC)
- Cobra (NASDAQ:COBR)
- Gateway (NYSE:GTW)
- Home Depot (NYSE:HD)
Best Buy is a Motley Fool Stock Advisor recommendation, and Home Depot is an Inside Value pick. The Fool has a newsletter for almost every type of investing.
Fool contributor Rich Smith does not own shares of any company named above.
