RadioShack and Target had been negotiating new contract terms, which RadioShack hoped would turn a money-losing deal into a money-maker. In the first three-quarters of 2012, RadioShack lost $38 million as a result of the deal with Target.
RadioShack’s management should have predicted this. The company had a similar deal with Wal-Mart Stores Inc. (NYSE: WMT) to sell mobile devices and calling contracts in Sam’s Club stores. But Walmart could see that it was leaving money on the table, so it cancelled the deal in mid-2011.
Target did not give RadioShack any contract revenue; the mega-store wanted RadioShack simply to manage its prepaid mobile business. As RadioShack discovered (and should have known from the start), there is no money to be made there.
Investors actually see the contract cancellation as a good thing for RadioShack. Without the money-losing deal with Target, perhaps the electronics retailer is a more attractive buyout possibility. That is about all that is left as a way for RadioShack shareholders to make a return on their investment.
That is why RadioShack shares are rocketing upward today. Shares are up about 7.4%, at $2.48 in a 52-week range of $1.90 to $11.10.
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