All is certainly not well at RadioShack (NYSE: RSH), but the company is showing some staying power and just might make its turnaround after all.
At the end of 2008, in the darkest hour of the financial meltdown, I picked RadioShack, Pier 1 Imports (NYSE: PIR), and KB Home (NYSE: KBH) as the companies least likely to survive another year. KB Home has underperformed the S&P 500 since, but RadioShack and Pier 1 are actually looking pretty good, with market-thumping returns. Color me flabbergasted.
I'm still not terribly impressed by RadioShack's progress, and neither are you, if its unwavering one-star CAPS rating is any indication. This week's fourth-quarter report showed a 4.7% rise in year-over-year sales, to $1.32 billion. Earnings expanded 26%, to $0.60 per share. But a lack of sales in the attractive personal-electronics and accessory segments made Mr. Market throw a fit over the results, and RadioShack traded down more than 7% following the news. Even a U.S. same-store sales gain of 6.1%, and 56% sales growth in its wireless segment, weren't enough to curry favor with the market.
In the end, things have to change at RadioShack -- and management knows it. CEO Julian Day took pains to explain how the company is rebranding itself as The Shack, and a 100-store trial of putting RadioShack kiosks inside Target (NYSE: TGT) stores is working out well for the Shacksters.
RadioShack sports way higher gross margins than either Wal-Mart (NYSE: WMT) or Best Buy (NYSE: BBY), about 45% to around 25% for the bigger rivals, but most of that advantage is lost before it falls through to the bottom line. Moving from expensive strip malls and shopping malls to a partner relationship with big-box retailers such as Target sounds like a good way to squeeze down operating expenses, so perhaps that's the ticket. A widening of that effort, and a nationwide rollout of Apple's (Nasdaq: AAPL) iPhone in its stores in 2010, should help, too.
So I was wrong about RadioShack a year ago, and it looks like The Shack will be standing for a while longer. But if there's another big share-price move coming, I imagine it'll be a backlash from this 79% one-year gain, although RadioShack's P/E of 12 is not exactly luxury-priced. Still, dropping "Radio" from the name isn't a radical enough makeover to make it cool, and the company will have to show investors that it can continue to improve earnings.
Will RadioShack ever go the way of the dodo bird, or will it forever haunt your local mall? Discuss in the comments box below.
