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Why RadioShack Stock Tumbled Today

By Jeremy Bowman – Mar 4, 2014 at 8:48AM

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Shares of the electronics retailer were sinking after its earnings report came out this morning. Here's what you need to know:

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of RadioShack (RSHCQ) were shorting out today, falling as much as 19% after the electronics retailer reported dismal fourth-quarter earnings this morning and said it would close as many as 1,100 underperforming stores.

So what: The company saw comparable-store sales plummet 19% on an overall sales drop of 20% to $935.4 million, well below expectations of $1.13 billion. It posted an adjusted loss of $1.28 a share, down from a profit of $0.07 a share. In a press release, CEO Joseph Magnacca noted "intense promotional activity particularly in consumer electronics, [and] a very soft mobility marketplace" among the company's challenges in the quarter. Magnacca said the decision to close stores was the result of a comprehensive review of the company's portfolio, but that the move will still leave it with a strong presence in each market. 

Now what: Closing stores may be seen as a sign of weakness, but it looks like RadioShack's best move to return to profitability after the abysmal quarter. Many other struggling retailers such as Best Buy and Barnes & Noble have made moves to "rightsize," and though that may not save these companies from extinction, it should extend their natural lives. RadioShack will still be left with 4,000 stores after the closures, a considerable presence across the country. I'd give Magnacca, who has led the company for a bit more than a year, a couple of more quarters to see if he can effect some sort of turnaround. He said the company had seen growth at its concept stores, meaning there is at least one bright spot.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Barnes & Noble. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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