Things are going from bad to worse at RadioShack (RSH +0.00%), a traditional brick-and-mortar vendor of electronics. Generally, the industry is under pressure from weak consumer-electronics demand as well as increased competition from e-commerce players, but nobody seems to be bearing the brunt of the trend quite as much as poor old RadioShack. The company delivered yet another catastrophic loss for its most recent earnings report, as losses pile up. Is the end drawing near?
Source: Wikimedia Commons.
Tough crowd
Overall, the consumer-electronics market doesn't seem to be in particularly good shape. According to research firm NPD Group, consumer-electronics sales haven't moved from around $145 billion in three of the last four years. Last quarter, the category as a whole declined by 2.6%.
Several factors are contributing to this stagnation. Partly, the market is becoming saturated in many parts of the world, as most people who wanted a smart device have one by now. As such, much of the sales action is driven by replacement demand and new releases, which are scheduled for later this year. Also, there is nothing particularly new on the horizon. While wearable tech may increase electronics demand to some degree, it is not leading to the sales surge that some had hoped for.
This trend has affected most major electronics-retail chains, including Best Buy (BBY +2.29%). While the company beat on earnings for its most recent report, revenue lagged expectations, dipping around 4%. Meanwhile, U.S. comp-store sales declined by 1.3%. While the company is still afloat, seeing its bottom line boosted by aggressive cost cuts under the Renew Blue program, growth still seems a rather distant proposition.
Furthermore, the company isn't particularly optimistic about the next few quarters. Management had the following to say: "As we look forward to the second and third quarters, we are expecting to see ongoing industrywide sales declines in many of the consumer electronics categories in which we compete."
Plumbing new depths
All in all, Best Buy isn't doing particularly well following overall softness in the consumer-electronics category. However, compared to RadioShack, things are looking pretty good. RadioShack's most recent results were nothing short of disastrous.
The company's first-quarter loss ballooned from $28 million to $98.3 million for its ninth straight quarterly decline. Excluding items, the loss was $0.98 per share, nearly twice as much as the $0.51 per-share loss analysts were expecting. Sales cratered by 13% with same-store sales down 14%, all these numbers leading investors to punish the stock for around 10% following the news.
RadioShack has been trying to turn things around recently, as its smaller locations have struggled to compete with big-box chains and online retailers. This would have been a tall order at any time, but during a slump in the overall consumer-electronics category, it has become a nearly insurmountable challenge. Still, RadioShack isn't the only company reporting scary results.
hhgregg (HGG +0.00%), which competes with the two previously mentioned companies in the consumer-electronics category, also posted a loss for its most recent quarterly report. The adjusted loss per share came in at $0.17 compared to last year's adjusted profit of $0.31 per share. Net sales as well as comp-store sales declined by a hefty 9.9%, both attributable to a poor performance in consumer electronics.
So what could save these ailing retailers? Obviously, neither have the scale or the pricing power to follow Best Buy's turnaround plan, which is keeping the company afloat at the moment. As such, it must wait for new product launches to boost sales, but even with these new catalysts, it seems unlikely that either will be able to return to sustainable profits anytime soon.
The bottom line
It is clear by now that the consumer-electronics category is in bad shape. Best Buy said as much in its most recent earnings report. While it isn't doing particularly well, it is still performing far better than smaller rivals such as RadioShack and hhgregg. Both have been posting some very scary numbers lately, and with the overall slump in electronics expected to continue through the next few quarters, it seems unlikely that things will improve anytime soon.
