Zacks_Analysts' Blog : Earning Scorecard: RadioShack - Analyst Blog

RadioShack Corp.(RSH) reported disappointing third quarter 2011 financial results, falling short of the Zacks Consensus Estimates.

The comparable store sales for the company-operated stores and kiosks (stores and kiosks opened at least a year) declined 4% year over year. This is a key retail performance indicator measuring growth from existing sales locations.

Third Quarter Highlights

Quarterly net revenue was $1,032 million, up 3% year over year and in line with the Zacks Consensus Estimate of $1,029 million. The year-over-year rise in revenue was primarily attributable to the roll out of the company’s Target Mobile centers.

GAAP net income from continuing operations in the reported quarter was $0.3 million or a break-even compared with a net income of $46 million or 37 cents per share in the year-ago quarter. However, quarterly adjusted (excluding one-time items) EPS of 15 cents was significantly lower than the Zacks Consensus Estimate of 36 cents.

Quarterly gross profit was $441.9 million compared with $453 million in the prior-year quarter. Gross margin was 42.9% in the reported quarter compared with 45.2% in the prior-year quarter. This was mainly due to the overall growth of the mobility platform across Target Mobile centers and U.S. RadioShack company-operated stores, combined with a change in sales mix toward lower margin mobile devices.

Agreements of Analysts

Of the 16 analysts covering the stock in last 7 days, none revised their estimates for the fourth quarter of fiscal 2011. Likewise, for the first quarter of fiscal 2012, out of the 13 analysts covering the stock in the last 7 days, none revised their estimates.

Similarly, for fiscal 2011, in the last 7 days, out of the 15 analysts covering the stock, none revised their estimates upward or downward. Also, for 2012, in the last 7 days, none of the 18 analysts covering the stock revised their estimates upward or downward.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of fiscal 2011 is pegged at 39 cents.  The projected negative annual growth is 23.77%. Similarly, for the first quarter 2012, the current Zacks Consensus EPS Estimate of 27 cents indicates a  year-over-year loss of 22.20% year over year.

Magnitude of Estimate Revisions

During the last 7 days, the Zacks Consensus Estimates for fourth quarter 2011 and first quarter of 2012 were in line with the current estimates of 39 cents and 27 cents per share, respectively. Likewise, for fiscal 2011 and 2012, the Zacks Consensus Estimates were at par with  the current estimates of $1.27 and $1.46 per share, respectively.

Earning Surprises

RadioShack produced an earnings surprise of 21 cents or 58.33% in the last quarter. There is a downside potential (essentially a proxy for future earning surprises) of 7.69% for the ongoing quarter and 3.70% in the upcoming quarter. For fiscal 2011 and 2012, the Zacks Consensus Estimates downside potentials are 6.30% and 4.80%, respectively.

Our Recommendation

We believe that most of the analysts prefer to remain on the sidelines as the company has entered into an agreement with Verizon Communications Inc. (VZ), the largest wireless operator in the U.S, to provide the latter’s postpaid and prepaid wireless products and services in its company-operated stores. Moreover, continuous fall in comparable store sales is also concerning for the analysts to hold an extremely cautious outlook.

We, thus, maintain our long-term Underperform recommendation for RadioShack. Currently, RadioShack has a Zacks#5 Rank, implying a short-term Strong Sell rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/