RadioShack Posts Eighth Consecutive Quarterly Loss, Announces Closure Of 1,100 Stores

RadioShack‘s (NYSE:RSH) attempts to turn itself around continue to fail. The company saw its net loss widen to $191.4 million in Q4 2013 compared to $63.3 million in Q4 2012 as its turnaround strategy again failed to deliver results. The company has been a prominent player in the retail business for over 90 years but has been struggling to survive in the industry with rising competition from online retail giants such as Amazon(NASDAQ:AMZN). At $935.4 million, Radio Shack’s net sales declined by 20% y-o-y on account of lower comparable store sales.

Within its US company operated stores, RadioShack’s mobility platform sales were down by $139 million. Its retail platform sales decreased by $75 million in the fourth quarter of 2013. The fall was primarily driven by categories such as laptop computers and GPS devices.

RadioShack’s total gross profit margin was 29.8% for the fourth quarter. Excluding one-time items, the gross margin rate stood at 30.8% as compared to 35.8% in Q4 2012. Gross margins were lower y-o-y due to significant discounts offered across categories, lower margins in the mobility business and inventory flow issues for higher margin items. ^[1]

The company’s announcement about closing 1,100 stores, which represents 20% of its present store count, doesn’t inspire much confidence in its turnaround strategy articulated early in 2013.

See our full analysis for RadioShack

RadioShack’s turnaround initiative is centered around the following key areas –

1. Re-positioning its Brand: Efforts To Connect With A Younger Audience

The main focus of RadioShack’s initiative is on re-branding the chain and re-defining what it stands for. The company is making efforts to tap into the younger demographic and the Do-It-Yourself (DIY) customer segment. The latter became disenchanted with RadioShack following the 2009 re-positioning exercise by the chain and has largely abandoned it.

RadioShack aims to connect with a more youthful audience through partnerships with key vendors and celebrities. It claims to have benefited from its partnership with DrRobin Thicke in May 2013 to promote the Pill speaker from Beats bye. It entered into another Beats promotion during the MTV Video Music Awards featuring tennis star Serena Williams and rap artist 2 Chainz. It subsequently launched co-branded commercial with several celebrities, including Michael Phelps, Steve Aoki, Lil Jon and Alexis & Fido. RadioShack claims that these promotions are activating a new consumer base which will help drive its sales growth. In the Q4 2013 earnings call, RadioShack said that its advertisement at the Super Bowl event, which generated a lot of coverage and consumer engagement, was a continuation of these efforts.

2. Revamping Product Assortment

RadioShack is working towards removing duplicate inventory and unproductive inventory through promotions and clearance events. In Q4 2013, it continued to reduce the number of stocked items in its stores. In addition to getting rid of old products, the company is carrying fewer products in order to reduce clutter and enhance customer experience at its stores.

The company claims that it has identified those SKUs that drive demand in a given store’s trade zone so that it can customize the assortment and focus the inventory on products that generate the majority of its sales and profits. It is also rationalizing the number of private brands in its portfolio.

3. Reinvigorating Its Stores

RadioShack has been working towards converting its stores into a more relevant outlet for consumers. It opened its first concept store in July 2013 in an effort to make a big impact on the electronics shopping market and improve the Radio Shack customer experience by promoting an interactive experience in its stores. These concept stores offer interactive areas such as the speaker wall where shoppers are able to connect their mp3 players and other mobile media devices to experience technology.

The company claims that these stores have exceeded its forecast and generated double digit comparable store increases since the conversion date. RadioShack already has concept stores in California, Massachusetts, New York and New Jersey, and has 10 locations currently under construction for new concept stores (across the nation), with which it aims to reinvigorate its store experience.

4. Improving Operational & Financial Efficiency

In an effort to lower costs and increase efficiency across the company, RadioShack has made changes to its distribution system. Initially, its stores received shipments once a week which led to weak in-stock performance. In Q3 2013, it had implemented a program where the stores can get up to 3 shipments per week. Additionally, shipments are released as soon as a store’s replenishment needs fill a box as opposed to its initial practice of holding everything for a store for a weekly shipment. RadioShack believes that these small changes can have a material impact in improving its performance and enhancing customer experience.

In Q4 2013, in a bid to increase efficiency, RadioShack says that it reviewed its store portfolio and has decided to close up to 1,100 lower performing stores. This will still leave the company with more than 4,000 stores, including about 900 franchisee stores.

RadioShack reported SG&A expense of $389 million or 41.6% of net sales in Q4 2013, compared to $384 million or 32.7% of net sales in Q4 2012. While the company’s expense on compensation to employees was lower due to lower sales commissions and lower corporate headcount (as a result of store closures), this was more than offset by increases in professional fees. SG&A as a percentage of net sales was higher, primary due to an overall decline in sales. ^[2]

We are in the process of updating our price estimate of $2.87 for RadioShack.

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1. RadioShack Q4 2013 Earnings 8-K, SEC [↩]
2. RadioShack Q4 2013 Earnings Conference Call, Seeking Alpha [↩]