RadioShack 4th Qtr Earnings; Still Bleeding, Just Not Hemorrhaging

RadioShack released fourth quarter and year-end earnings today, and it was a perfect example of leaping over a bar that may have been set just a tad too low.  For the fourth quarter, the company posted $.62/share on $84.5 million net income.  Blew past the $.43 estimate, but that figure was more like a chalk outline around a dead body than a real consensus figure.  Full-year earnings were only $.54/sh, and that’s down from $1.80/sh in 2005.  When a company is in the middle of a capitulation of culture, earnings, and brand, estimates can and should swing wildly.  There just gets to be too many variables up in the air. 

Like what the CEO really intends to do with the company.  RadioShack’s future needs to, for the sake of any long-term investors, involve a lot more than standard cost-cutting measures and paring off a few stores.  They could pare off 3,000 stores, half their total, but the other 3,000 would still be marked for a slow death.  The CC didn’t give us anything meaningful or sweeping in terms of strategy.

Total sales were $1.45 billion for the 4^th and $4.77b for the year, with the key 4^th qtr figure down about 12.5% yoy.  Much of the sales shortfall can be attributed to store closings during the quarter, making 505 closings for the year.  But comps were down 5.6% for the year, and that’s not an industry trend that RadioShack can blame the figures on.  Best Buy and Circuit City both posted comps above 4%. 

RadioShack will be featured in a 24/7 Break-up Analysis shortly, but in the meantime, we will give the company a small pat on the back for passing step one of their multi-stage comeback in exceeding dramatically weak earnings estimates.  They have set the bar far higher for fiscal ’07, calling for full-year earnings of $1.00 to $1.20, which would be double what we saw in 2006, but still only about half of what the company earned in ’04 and ’05. 

So did management leave room in their estimates for plenty of upside?  Sure they did – even if they close another 1,000 stores this year they could still earn $1.30-1.40 if they returned to the operating margins of just a few years ago.  Is that likely to happen?  Most say no, as their brand has been made a virtual laughing stock, even amongst people who don’t follow the markets.  Julian Day earned his stripes as a turnaround manager, but this one if pulled off would make for a career-topper.

Ryan Barnes