RadioShack discloses 47 million loss in third quarter
Oct 24, 2012 (Menafn - Fort Worth Star-Telegram - McClatchy-Tribune Information Services via COMTEX) --RadioShack surprised Wall Street on Tuesday with a bigger-than-expected loss in the third quarter as sales at the consumer electronics chain continued to wane.
The troubled Fort Worth-based electronics retailer said it lost 47 million during the quarter ended Sept. 30, and that the early days of the all-important, holiday-weighted fourth quarter were slower than anticipated. The red ink compared with a 300,000 profit for the same period last year. Same-store sales -- at stores open at least a year, a key retail measure -- declined by 1.6 percent.
"Overall, our business performed below expectations," Dorvin Lively, the interim CEO, said in a prepared statement. "I am most disappointed in our post-paid [contract] mobility business, where we saw a continued decline in margin performance."
But Lively, who took over as CEO in September after the board fired Jim Gooch, who had been the top executive for just 16 months, said its wireless accessory business was improving and that the company had trimmed costs during the quarter.
On Wall Street, RadioShack stock (ticker:RSH) opened down sharply but rebounded during the trading day, closing up 18 cents, or 7 percent, at 2.57 on a day when the overall market sold off.
Lively also signaled that the company is taking action on its money-losing mobile phone kiosks in 1,500 Target stores.
RadioShack is writing off 25 million on the branded "Target Mobile" business, which Lively said will end in April unless the joint venture is restructured so it can be profitable.
"If we can't make any money in that, we should get out of it," Lively bluntly told financial analysts in a conference call.
That sentiment pleased some observers.
"The good news is that RadioShack plans to either renegotiate this contract, or end its relationship with Target by April of 2013," said Dan Wewer, an analyst with Raymond James, in a research note.
But Wewer saw little else to cheer about.
"We believe these results highlight the declining relevance of the company's business in the face of a highly competitive environment and a weak consumer electronics product cycle," his note said. "It appears the economics of the mobility product line are no longer sufficient to support a high-touch, bricks-and-mortar retail format such as RadioShack."
RadioShack disclosed that its September layoffs affected 150 employees, mainly at the downtown Fort Worth headquarters, representing about 10 percent of the staff there. Lively said that number doesn't reflect open positions that will not be filled.
In a regulatory filing, the chain stated termination costs for those laid off amounted to 2.9 million. That compared to the 5.6 million in severance costs and various benefits for Gooch, it said. (Another comparison disclosed was the 7.5 million in termination expenses for 1,500 workers at a Chinese plant it closed last year.)
While analysts expected RadioShack to lose 5 cents to 29 cents per share, it lost 47 cents -- 33 cents before special expenses, including termination costs for Gooch and the others, Bradley B. Thomas, an analyst with Key Banc Capital Markets, wrote in a research note. Key Banc has performed some non-securities services for the chain, it said.
David Strasser, a Janney Montgomery Scott analyst who maintains his "neutral" rating on RadioShack, said in a note that he had predicted a 17 cents per share loss, which was off because the chain's gross margin was 36 percent, two percentage points lower than what he had expected. This was in "large part due to the mix shift to the wireless business -- lower-margin smartphones and a decline in post-paid units -- that carries low- to-mid 30s gross margin," he wrote.
"On a positive note, private-label signature sales were up once again and [administrative and general overhead costs] showed some opportunity to be cut," Strasser added. "However, the key remains the need to drive gross profit dollars, and that remains elusive to date."
The acting chief executive did see some hope in one innovation that sounded like putting into practice the old RadioShack TV commercial pitch, "You've got questions. We've got answers."
The recent initiative, he said, was to put trained wireless "experts" in hundreds of high-volume stores around the country. He could not quantify improvement in comparable sales or the conversion rate of browsers to buyers, but indicated the approach was showing results.
"Are we missing an opportunity because we aren't focused on the specialty element?" Lively asked, then said. "We want people to understand the device, understand the plans and be totally focused."
Lively, despite having no chief merchant, insisted that RadioShack has an effective merchandising team. Still, the electronics retailer was engaged in heavy duty self-reflection.
"Clearly there are some things we can do on the assortment side," he said, noting that the chain had strayed from its past inventory selection. He promised a "more robust" choice of private-label goods, which also carry higher margins.
"We're taking a fresh look at the entire strategy," he added. "That's something we're taking a hard look at."
Barry Shlachter, 817-390-7718
Twitter: @bshlachter
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