We reaffirm our long-term Neutral recommendation on
RadioShack Corp. ( RSH ). The company
surprised in its fourth-quarter 2012 financial results with a net
profit. This was in huge contrast to the Zacks Consensus Estimate
of a net loss. However, the top line of RadioShack fell below the
Why Kept at Neutral?
We believe that an adverse product-mix toward low-margin devices
and a volatile economic scenario in the U.S. are taking a toll on
RadioShack's revenues. The company's legacy consumer electronics
retail business is on a secular downtrend. Consumers now prefer
purchasing online to visiting retail stores. Loss of foot traffic
impacted RadioShack severely. Earlier, management suspended its
dividend payment in order to reduce the company's debt burden.
Nevertheless, termination of the Target Corp. (
TGT ) contract may
improve gross margin, going forward. Meanwhile, the stock price
plunged 52% last year. In our view, the company is currently fairly
valued. RadioShack carries a Zacks Rank #3 (Hold).
Risk/Reward Almost Balanced
In the previous quarter, revenues of the high-margin Signature
business grew 2% year over year. This was the fifth consecutive
quarter of positive sales growth for this platform. Signature sales
increased primarily on higher sales of wireless accessories.
Since Sep 2011, RadioShack started offering both post-paid and
prepaid products of Verizon Wireless in its 4,300 company-operated
stores nationwide. Depending on Verizon Wireless, the company may
expand its market share in the mobile phone business. Verizon
Wireless is a joint venture between Verizon Communications
Inc. ( VZ )
and Vodafone Group plc. ( VOD ).
On the other hand, in the previous quarter, the comparable store
sales for the company-operated stores and kiosks (stores and kiosks
that have been operational for at least a year) were down 7% year
over year. This is a key retail performance indicator measuring
growth from the existing sales locations. The core retail
businesses of RadioShack, namely, consumer electronics platform
continues its free fall.
Importantly, core businesses have some material effect on the
wireless business. Core business indirectly drives wireless sales
through increased foot traffic. Most of the customers who entered
RadioShack stores intending to buy core products were attracted
toward its latest wireless offerings. RADIOSHACK CORP (RSH): Free Stock Analysis
ReportTARGET CORP (TGT): Free Stock Analysis ReportVODAFONE GP PLC (VOD): Free Stock Analysis
ReportVERIZON COMM (VZ): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment