Electronics retailer RadioShack
Just two weeks after the company announced it had installed former Sears Holdings
The electronics retailer has been in turnaround mode for some time now, though few of the changes implemented have had much effect. Just before its executive's resignation, the company had announced the closure of as many as 700 stores and two distribution centers. Earnings had fallen 61% in the fourth quarter of 2005, subsequently followed by an 85% slide in profits in the first quarter this year. The prospects for this damaged retailer haven't been worth the trouble.
There's only so much the company can cut. And while it wants to focus sales on higher-margin products, it's so far been unable to do so and may have to write down as much as $100 million in inventory this year. Margins, while in line with industry figures, have been steadily falling at The Shack. Its advertising budget has already been cut by $30 million to $40 million, and its switch from selling Verizon
Now that Day is at the helm, he'll be hard-pressed to duplicate the efforts he achieved at Kmart. RadioShack's real estate isn't on par with the value the discount retailer realized when it shed its underperforming stores. With so many turnaround plans in place already, where will he cut next? One area for certain that won't be touched is executive pay. Day's salary will be $1 million, and he's guaranteed a $1 million bonus for 2006, with the potential to earn double that amount. In addition, he was granted 4 million stock options, priced at $13.82 each, for a total value of more than $5.5 million. RadioShack will also foot the bill for 24 months for Day to "commute" from either of his two homes in Massachusetts or Montana to the company's headquarters in Fort Worth, Texas.
A good manager can transform a mediocre company into a top performer. Day has experience in turning around Safeway
Are you interested in successful turnaround plays? Philip Durell, advisor for the Motley Fool Inside Value newsletter, specializes in finding established companies that are out of favor with the market. With a free 30-day guest pass, you get access to all of his current recommendations, including First Data.
Best Buy is a Motley Fool Stock Advisor pick.