% | $
Quotes you view appear here for quick access.

RadioShack AO Message Board

  • SortNewest  |  Oldest  |  Most Replied Expand all replies
    • I would doubt they want to buy anything from RadioShack.

      They're just going to sell most of what you could get at a Shack, for half the price, leaving a couple of hobbyists and a bored teenage salesman as the last humans in a RSH store...


      At the time I recommended it, RadioShack had just replaced poor performing CEO David Edmondson with retail-turnaround guru Julian Day.

      Mr. Day was just coming off a huge success, helping billionaire value investor Edward Lampert increase the operating performance of Sears Holding Corp (SYM: SHLD) after the merger between Sears and K-Mart.

      The plan was to work his turnaround magic at RadioShack, and from what I could see by looking at the financials - it was very doable:

      Year 1998 1999 2000 2001 2002 2003 2004 2005
      Sales ($bil) 3.5 4.1 4.7 4.7 4.5 4.6 4.8 5.0
      Gross Margin % 52.1 50.5 49.4 48.6 48.9 49.8 50.3 46.7
      Op. Margin % 14.4 14.5 15.4 12.9 11.8 12.4 13.6 9.3
      Net Profit Margin % 6.8 7.4 7.7 6.1 5.6 6.4 7.0 4.2

      The first thing that you�ll notice is that from 1998 to 2005, sales increased from $3.5 billion to $5 billion. Not too shabby at first glance.

      But over the same period, gross margins declined from 52.1% to 46.7%. That meant that the company was paying manufacturers more money for the products they were retailing. This is a very hard thing to do in an environment where China is making all sorts of electronics cheaper.

      Operating margins also trended downward the entire time, going from a high of 14.4% to 9.3% in 2005. That meant the company had higher selling, general and administrative costs than they should.

      In a period where the company paid down 10% of their debt � and lowered its interest expense - operating margins should have been going higher instead of lower.

      Last but not least, net profit margins sank from 6.8% to a dismal 4.2%. In a company that does $5 billion in sales, that means a decrease in net income of over $120 million.

      As I studied all this information, it occurred to me that from 2000 to 2006, one person was running the company - David Edmondson. It was only after he came on board that RadioShack's numbers fell apart.

      Naturally, the stock price soon followed, with the shares collapsing from the $35 range to the $16 range.

      • 2 Replies to Biggie_Tabes
      • i believe sears price went to 198.00 per share
        it is now around 135.00 just like rsh. dummies,
        you need an increase in gross sales after you
        recyle the dramatic cuts. rsh biggest sales were
        in a mature market, cell phones. as this business
        losses market share rsh will hurt. they need to
        replace lambert and day with merchandisers.

      • Retail Distributor Turnaround Plan 101

        Mr. Day knew, as do all good managers, that his first priority was to "right-size" the income statement.

        That meant he was going to have to study the most important metrics in retail: revenue per square foot, cost per square foot and profit per square foot.

        To increase gross margins, Mr. Day had to look at which products were least profitable and replace them, using the space instead for products that were more profitable.

        To increase operating margins, Mr. Day would have to lay off hundreds, if not thousands, of good and honest workers through store closings and general releases.

        (I know there was an uproar about this, but the reality is that many of the workers who were laid off shouldn�t have been there in the first place.)

        Based on Mr. Day's past experiences, neither feat seemed too difficult to achieve.

        Indeed, every percentage point that a $5 billion company like RadioShack increases its profit margins means an additional $50 million in profits, which is an extra 37 cents per share.

        Ultimately, the goal was for net profit margins to advance from 4.2% back to 7.7%.

        In 2005 alone, that would have meant RadioShack's profits would have been $333 million, or 56% higher than what they were. As a result, per share earnings would have soared from $1.43 to $2.23.

        At 15 times earnings, the stock would be selling in the $30 - 40 range.

        A Classic Fallen Angel Stock

        Forget new store openings. Forget additional revenue growth. And forget any big promises for world domination.

        Based solely on a rebound in profits, it was clear to me that RadioShack shares were a bargain at $16.25.

        But soon after recommending the stock, Wall Street seemed to wake up to the fact that RadioShack's problems were fixable and that Julian Day was the right man for the job.

        Within months, the shares started moving upward, hitting a high of $35 earlier this year. (We sold the stock at $29.31.)

    • Requires membership to read (and probably suspension of common sense as we stare at mostly-empty RSH stores that have falling same-store sales volume and nothing in them except a few batteries that anyone really would want).