) is slated to release its second quarter 2012 results on July 25,
before the market opens. The current Zacks Consensus Estimate for
the second quarter is pegged at 3 cents, representing an annualized
decline of 88.75%.
With respect to earnings surprises over the trailing four
quarters, RadioShack has met the Zacks Consensus Estimate only
once, with an average earnings surprise of negative 113.13%.
First Quarter Highlights
Quarterly net revenue was $1,008.3 million, down 0.9% year over
year and missed the Zacks Consensus Estimate of $1,065 million. The
year-over-year downside in revenue was primarily attributable to
the decline in sales from the U.S. RadioShack company-operated
GAAP net loss from continuing operations in the first quarter of
2012 was $8.0 million or a loss of 8 cents per share compared with
a net income of $31.4 million or 30 cents per share in the year-ago
quarter. However, quarterly adjusted (excluding one-time items) EPS
of a loss of 8 cents was nowhere near the Zacks Consensus Estimate
of an income of 5 cents.
Gross margin was 39.1% in the reported quarter compared with
44.7% in the prior-year quarter. Comparable store sales for
company-operated stores and kiosks (stores and kiosks opened at
least a year) declined 4.2% year over year. This is a key retail
performance indicator measuring growth from existing sales
Agreement of Estimate Revisions
In the last 30 days, none of the 16 analysts covering the stock,
increased the estimates for the second quarter of 2012, while one
analyst revised it downwards. Similarly, for the third quarter of
fiscal 2012, out of the 15 analysts covering the stock, none of the
analysts changed their EPS estimates, over the last 30 days.
For fiscal 2012, in the last 30 days, out of the 16 analysts
covering the stock, none of the analysts increased the EPS
estimates while one analyst slashed it. Likewise, for fiscal 2013,
out of the 15 analysts covering the stock, none of the analysts
increased the estimate while one moved in the opposite
We believe that most of the analysts prefer to remain on the
sidelines as the company has entered into an agreement with
Verizon Communications Inc.
), the largest wireless operator in the U.S, to provide Verizon's
postpaid and prepaid wireless products and services in its
company-operated stores. Owing to the continuous fall in its core
consumer electronics business, the analysts hold an extremely
Magnitude of Estimate Revisions
During the last 30 days, the Zacks Consensus Estimate has
changed from 4 cents to 3 cents for the second quarter of 2012,
while for the next quarter it was in line with the current Zacks
Consensus Estimate of 8 cents. Likewise, for fiscal 2012 and 2013,
the Zacks Consensus Estimate has plummeted by a penny to 30 and 38
In the previous quarter, RadioShack reported EPS of a loss of 8
cents, which was far below the Zacks Consensus Estimate of an
earning of 5 cents. The current Zacks Consensus Estimate for the
ongoing quarter contains a 33.33% upside potential (essentially a
proxy for future earning surprises) while the current Zacks
Consensus Estimate for the third quarter remains flat at 0.00%.
Similarly, for fiscal 2012 and 2013, the Zacks Consensus Estimate
contains upside potentials of 56.67% and 60.53%, respectively.
Despite the termination of its contract with T-Mobile, we
believe that the company's recent agreement with Verizon
Communication will deliver better results in the near future as
Verizon is a much bigger company than T-Mobile. The company has
re-launched its "The Shack" brand of retail store chain and is
betting on wireless technology to improve its revenue going
forward. Moreover, the company's strategy to expand in Mexico and
several South-East Asian countries will be accretive for its growth
However, RadioShack continues to face cut throat competition
Wal-Mart Stores Inc.
Best Buy Co. Inc.
). Moreover, the decline in demand for non-wireless category
products along with the continuous fall in gross profit margin
based on unfavorable sales mix towards lower margin smartphones and
other mobile devices remain serious concerns for the company.
We, thus, maintain our long-term Neutral recommendation for
RadioShack. Currently, RadioShack has a Zacks #4 Rank, implying a
short-term Sell rating on the stock.
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