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RadioShack to Shut Stores as Sales Dip

Zacks Equity Research

The struggling American franchise of electronics retail stores, RadioShack Corp. (RSH) is planning to close 1,100 unprofitable outlets after the company reported dismal numbers for the eighth consecutive quarter.

Earlier, RadioShack undertook 5 strategies to restructure its business model which include redefining the brand, revamping product assortment, reinvigorating stores, achieving operational efficiency and attaining financial flexibility.

The company’s decision to shut underperforming stores is part of its strategy to bring the company back on the growth track. After shutting down nearly 20% its outlets the company’s operating expenses are expected to reduce. However, until the comparable store sales improve, a drastic turnaround in its business is impossible. RadioShack is facing stiff competition from retail giants like Amazon.com Inc. (AMZN), Best Buy Co., Inc. (BBY) and Conns Inc. (CONN).

RadioShack’s core Consumer Electronics retail business is on a secular downtrend. Nowadays, consumers prefer making online purchases to visiting retail stores. Consequently, the rising trend of shopping through tablets and smartphones is lowering profits of the retail industry.

In the recently concluded quarter, the company’s top and bottom line missed the respective Zacks Consensus Estimate. More importantly, the company’s comparable store sales for the operated stores and kiosks (stores and kiosks that have been operational for at least a year) declined 19%.

This is a key retail performance indicator measuring growth from the existing sales locations. Free cash flow, in the reported period, was a negative $6.5 million against $110.8 million in the prior-year quarter. Thus, the shutting down of stores is expected to increase cash flow and improve margins going forward.

RadioShack currently has a Zacks Rank #3 (Hold).

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