It's back to "risk on" this Tuesday morning, as tensions appear to ease in the Ukraine. I say "appear" because (1) it's difficult to know just how the situation is evolving when you're sitting more than 5,000 miles away from the Crimean capital, Simferopol (yes, I had to look that up), and (2) even if one had a local perspective, I expect the situation remains pretty fluid. Still, the Russian Trading System Cash Index is up 6% as I type this and U.S. stocks opened higher this morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (^DJI 0.22%) rising 1.27% and 1.23%, respectively, at 10:15 a.m. EST. Meanwhile, the threat of war in the Ukraine had nothing to do with the awful fourth-quarter results RadioShack (RSHCQ) reported this morning, which have sent shares plummeting nearly 16% at a.m. EST.
Last year, I panned electronics retailer Best Buy (BBY 0.50%) for its aggressive price-matching strategy going into the holiday season, but perhaps there were worse strategies. There were certainly worse outcomes, as competitor RadioShack demonstrated today. Same-store sales declined a whopping 19% in the fourth quarter -- compare that to the 1.2% drop Best Buy experienced in its most recent quarter (note, however, that Best Buy's fiscal fourth quarter ended on Feb. 1, rather than Dec. 31). RadioShack's total revenue of $935 million fell well short of the $1.12 billion analysts anticipated. An adjusted loss of $1.29 per share was also far below the $0.16 consensus estimate.
For RadioShack, this represents four misses out of the past five quarters on adjusted earnings per share and revenue (not to mention earnings before interest, taxes, depreciation, and amortization, but who's counting).
Even before today's drop, RadioShack shares were valued at roughly three-quarters of their tangible net value -- there are no earnings-based multiples, as the company is not even expected to be profitable in 2015. At that level, we are beginning to fish in "deep value" waters -- the ugly, unloved stocks that trade at deeply discounted multiples.
There is an excellent reason for this: According to the Wall Street consensus, investors will need to wait at least until 2016 for any glimmer of a profit (S&P Capital IQ only shows a consensus estimate as far out as 2015). What will the retailing environment look like then? In two years' time, do you think e-commerce will represent a smaller or larger proportion of retail in general, and electronics items specifically? It would not surprise me if RadioShack had filed for bankruptcy long before then. The company's announcement that it will close 1,100 stores does little to allay my concern.
Ultimately, there is probably only room for one national electronics retailer in the U.S.; if that's the case, your best bet isn't RadioShack, it's Best Buy (which is itself no sure thing).