Zacks_Analysts' Blog : RadioShack to Underperform - Analyst Blog

The nightmare of RadioShack Corp. (RSH) persists as the company continues with its disappointing performance. The company fell below the Zacks Consensus Estimates in the third quarter of 2011. Precipitous decline of the signature and consumer electronics retail businesses, adverse product-mix toward low-margin devices, and a volatile macro-economic scenario in the U.S. are taking toll on the company’s financial results. Besides, weaker than expected growth of the mobile platform and growing marketing expenses are other near-term concerns.

Management provided a tepid outlook for the ensuing fourth quarter of 2011. In the previous quarter, thecomparable 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 the existing sales locations. We thus downgrade our recommendation on RadioShack to Underperform.

RadioShack is facing bottom-line pressure for its lucrative wireless platform. In the previous quarter, sales were inched up 1.3% year over year. However, the company will continue to face weak bottom line due to costs associated with transition from T-Mobile to Verizon Wireless partnership. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD). Although management remains confident of achieving future business from Verizon, it believes that Verizon business needs more consumer awareness and the company will spend increasing amount for marketing. We expect the wireless division revenue to remain almost same in 2012.

The core retail businesses of RadioShack, namely Signature (including accessories, digital-to-analog TV converter boxes and related TV antennaspower, service, and technical products) platform and consumer electronics (including digital TVs, digital music players, and digital cameras) platform continues their free fall. In the previous quarter, revenue from these two segments declined 6.3% and 20.9% year over year.