Shares of RadioShack (RSHCQ) declined around 17% on Tuesday after the company reported some unexpected results for the quarter. The Shack's sames-store sales were down 8%, revenue dropped 10%, and gross margins plummeted 21%. While these statistics are worrisome, it's important to look past the red ink to see what was driving these abysmal results and whether there are any clues to the company's turnaround efforts.
Judging from RadioShack's conference call, it appears management went all in on an aggressive re-merchandising effort and pushed Wall Street's needs to the wayside. Re-merchandising typically involves refreshing inventory with a new mix of products, and liquidating old inventory. That's the primary reason RadioShack's results were so bad.
Beyond this development, there were four other signs of hope at the company in the conference call and earnings release:
- Remodeled stores are seeing double-digit same-store-sales increases.
- A new finance package should provide enough liquidity for turnaround efforts at least through 2016.
- Customer surveys show an improved shopping experience.
- Two new hires strengthen an already strong management team.
The steps RadioShack is taking today don't appear to be winning over Wall Street just yet, but time will tell if CEO Joe Magnacca and his team of retail all-stars will be able to right this sinking ship. In the following video, Motley Fool analyst Blake Bos goes over the companies earnings, elaborates on the four signs of hope, and tells investors what he's watching for at RadioShack going forward.
