100 days to fix RadioShack

100 days to fix RadioShack

Steve’s breakdown: I know Grey just won this account back in April but this whole 100 days thing is screaming: pitch the CEO some “truly right-size” type ideas so he doesn’t get fired in 100 days. Right?

FORT WORTH, TX: After two weeks on the job, RadioShack Corp. CEO Joseph Magnacca said Tuesday that the company has what he calls “truly right-size” stores. He told Wall Street that he’s giving himself 100 days to give the board a plan to revive the company.

Succeeding two CEOs with big-box experience, the former drugstore executive may have the perspective that RadioShack needs after it reported its fourth consecutive quarterly loss and its first annual loss on Tuesday.

RadioShack swung to a loss of $63 million as sales of mobile products, which constitute more than half its sales, and consumer electronics declined in the fourth quarter.

The company needs more than small, convenient locations. Apple, Amazon.com and Wal-Mart are dominating in sales of popular consumer electronics, and RadioShack needs more of those customers.Under the right management team, RadioShack may be able to defend its niche in electronics retailing.

The lack of iPhone 5 inventory when it was released in October and November hurt RadioShack’s fourth-quarter results, as did sales of other smartphones, which all come with low margins. On a call with analysts to review year-end results, Magnacca said that perhaps RadioShack has focused too much on the wireless business “and lost maybe some of the heritage that we had inside our business, which was focusing on the do-it-yourself” customer.

He listed among RadioShack’s competitive strengths the company’s 90-year heritage, a strong private-label business and a wide selection of merchandise in the chain of 4,600 company-operated stores in the U.S. and Mexico. “The equity in the RadioShack brand is probably greater than we all give it credit for,” he said.

An unprofitable partnership with Target Corp. that was a big distraction last year is “winding down,” and “we will be solely focused on RadioShack’s core business,” said Dorvin Lively, executive vice president and chief financial officer. In January, RadioShack said it would stop operating the wireless mobile counters inside 1,500 Target stores by April.

Fitch Ratings analyst Monica Aggarwal estimates the Target business resulted in $37.5 million in operating losses in 2012.

Losing market share

The Target exit should improve profitability, said KeyBanc Capital Markets analyst Bradley Thomas, but the declining consumer electronics business is tougher to reverse. Like Best Buy and others, RadioShack is losing market share to Amazon.com in the category that includes laptops, digital music players, residential phones, TVs, GPS and cameras.

Additionally, RadioShack’s smaller footprint does not allow it to carry the breadth of products that would make it competitive against other brick-and-mortar and online sellers, Aggarwal said.

While just over half its sales are now from wireless phones and other devices, RadioShack still carries a massive number of products in its stores, which average 2,500 square feet.

Frank Diaz, 70, a cash register repairman, went to the RadioShack at Cityplace in Dallas on Tuesday to buy a fuse.

“If I don’t find it here, I have to order it from out of town,” he said. RadioShack is the only store that carries many items he uses in his business, he said.

RadioShack has expanded its do-it-yourself business to include smartphone accessories such as headphone and wireless speakers, and sales in that category were up 2.2 percent to $1.3 billion in 2012 after being on a decline since 2008.

It’s that high-margin signature business that Magnacca said he’s interested in expanding. Lively said the company invested in more iPhone accessories for the fourth quarter and sold twice as many cases for iPhone 5s as it did smartphones.

RadioShack has started to “build a destination category here, and I think we can continue to do that with a better assortment strategy,” Lively said.

Total sales in the holiday quarter fell to $1.3 billion, compared with $1.39 billion last year, and same-store sales fell 7 percent.

The Fort Worth-based retailer reported a net loss of $63.3 million, or 63 cents a share, in the period that ended Dec. 31, compared with a profit of $11.9 million, or 12 cents a share, a year ago.

Analysts surveyed by Thomson Reuters forecast a loss of 5 cents a share on revenue of $1.36 billion.

Rare yearly loss

For the year, RadioShack posted a loss of $139.4 million on sales of $4.26 billion. That breaks a long string of profitable years that dates back to at least 1989. The company was founded in 1921 and doesn’t have access to all of its records but says no one can remember that it ever had a yearly loss before.

So Magnacca is starting from a low point.

Drugstore analysts gave him high marks. Magnacca was at New York-based Duane Reade when Walgreen bought the regional chain in 2010. Magnacca was put in charge of Walgreen’s marketing and merchandising operations across more than 8,000 stores.

At the time, Walgreen said Magnacca played a critical role in the company’s strategy to step out of the traditional drugstore mold. Citibank analyst Deborah Weinswig follows Walgreen and called his departure a “meaningful” one, given his critical role in the company’s strategy.

Other senior executives have been hired in recent months at RadioShack, but the chief merchandising officer position remains open, Magnacca said.

RadioShack has a cash pile to give it time to work on a turnaround, but it also has a big debt payment coming soon.

The company ended the year with total liquidity of $926 million, including cash and cash equivalents of $536 million and $391 million of availability under a $450 million asset-based revolving credit facility that expires in January 2016.

Total debt was $778 million at year-end. Notes due on Aug. 1 have a principal of $287 million. Other debt comes due in 2016 or later.

Source: Dallas News

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