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RadioShack Upgraded to Neutral

Zacks Equity Research

We upgraded our recommendation on RadioShack Corp. (RSH) to Neutral. The company reported mixed financial results for the second quarter of 2013. While total revenue surpassed the Zacks Consensus Estimate, net earnings fell below the same.

Why the Upgrade?

RadioShack has adopted 5 strategies to restructure its business model. These are: (1) repositioning the brand (2) revamping product assortment (3) reinvigorating stores (4) achieving operational efficiency and (5) attaining financial flexibility. The company is taking the service of business advisory firm, AlixPartners and investment bank Peter J. Solomon Co. to make a turnaround. Management has decided to close all underperforming stores once their lease period expires.

In the second quarter of 2013, the comparable store sales for the company-operated stores and kiosks (stores and kiosks that have been operational for at least a year) were up 1.3% year over year. This is a key retail performance indicator measuring growth from the existing sales locations.

Moreover, revenues of the high-margin Signature business grew 6.4% year over year. This was the sixth consecutive quarter of positive sales growth in this platform. Signature sales increased primarily due to higher sales of wireless accessories.

The company is striving to gain more importance as a strategic partner for nationwide wireless operators like Verizon Communications Inc. (VZ), AT&T Inc. (T) and Sprint Corp. (S).

RadioShack has formed a partnership with Beats By Dre, installed new display areas within the store dedicated to wearable digital fitness technology, established a new do-it yourself product line in partnership with Maker Media, and signed a five-year agreement with NACSCORP to offer consumer electronics and accessories to nearly 4,000 college stores.

Recently, this Zacks Rank #3 (Hold) company expanded its AUVIO line of music accessories with a dozen new speakers, headphones and a wireless receiver.

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