Earnings Scorecard: RadioShack - Analyst Blog

The future outlook for RadioShack Corp. (RSH) is flat. Second quarter 2010 financial results were mostly in line with Zacks Consensus Estimates. Recent earnings estimate revisions are showing an almost 50-50 swing in both directions.

RadioShack continues its solid performance supported by significant growth of wireless businesses. However, the company’s non-wireless product segment is facing a gradual decline in sales. Moreover, the company is facing intensifying competition from more diversified retail stores.

Second Quarter Highlights

Quarterly EPS of $0.41 was exactly in line with the Zacks Consensus Estimate. Emphasis on innovative wireless devices like the iPhone 4 helped RadioShack improve its bottom-line. 

Quarterly net revenue was $1,011.4 million, up 4.7% year over year but slightly below the Zacks Consensus Estimate of $1,017 million. Comparable store sales for the company-operated stores and kiosks (stores and kiosks opened at least a year) grew 6.7% year over year. This is a key retail performance indicator measuring growth from existing sales locations.

Agreements of Analysts

In the last 30 days, six of 16 analysts revised their estimates upward for the third quarter while 6 revised downward.  For the following quarter, five analysts revised their estimates upward while 6 moved in a different direction. 

Furthermore, six and 8 analysts raised their estimates for fiscal 2010 and 2011, respectively, during the same time period, while 7 analysts reduced their estimates for fiscal 2010 and 3 analysts reduced for fiscal 2011.

We believe the positive sentiment mainly comes from the massive demand for smartphones together with management's decision to extensively roll out wireless Kiosks in the majority of Target Corp. (TGT)-operated discount stores. The wireless category is likely to continue its impressive performance. RadioShack generated increased revenue from the Sprint Nextel Corp. (S), AT&T (T), and T-Mobile postpaid wireless business.

The negative opinion mainly comes from the gradual decline of non-wireless product sales. All the non-wireless categories (including Accessory, Modern Home, Personal Electronics, Power and Technical sales) were down in the second quarter compared with the prior-year quarter. Additionally, RadioShack is facing intensifying competition from larger rivals like Best Buy Co. Inc. (BBY) and Wal-Mart Stores Inc. (WMT).

Currently, the Zacks Consensus Estimate for the third quarter is 34 cents. If that materializes, it would result in a substantial growth of nearly 14% year over year. Similarly, for fiscal 2010, the current Zacks Consensus Estimate of $1.80 is also indicating a gain of nearly 10.3% year over year.

Magnitude of Estimate Revisions

In accordance with the mixed estimate revision trend, the Zacks Consensus Estimate has moved down by a penny in the last 30 days for the third quarter and also moved down by 2 cents for the following quarter. For fiscal 2010, the Zacks Consensus Estimate moved down by 2 cents in the last 30 days whereas for fiscal 2011 Zacks Consensus Estimate moved up by just a penny.

Our Recommendation

RadioShack is one of the most experienced and trusted consumer electronics specialty retailers in the U.S. We remain optimistic regarding the company’s large, profitable store base and its exposure to the wireless communications business. The company recently enriched its leading-edge wireless product portfolio by adding Samsung’s Galaxy S series of mobile entertainment and social networking devices. 

On the other side, the consumer electronics retail business continues to be highly competitive, driven primarily by technology and product cycles. Furthermore, any set-back for the U.S. economic recovery could have a significant negative impact on U.S. consumer spending, particularly discretionary spending for consumer electronics products, which, in turn, could directly affect RadioShack’s overall sales.

We thus maintain our long-term Neutral recommendation for RadioShack. Currently it is a Zacks #3 Rank ('Hold') stock.

 
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