We are maintaining our cautious stance on RadioShack Corp.(RSH) given the company’s moderate performance in the first quarter of 2011.
RadioShack declared mixed financial results for the first quarter of fiscal 2011. Although earnings per share (EPS) were in line with the Zacks Consensus Estimate, revenues fell slightly below the estimate. However, revenues increased 2.1% year over year mainly attributable to growth in mobility (mostly wireless) businesses (up 11%) but fell 22.3% sequentially, mainly due to lower demand for consumer electronic goods and the ongoing tussle with T-Mobile business. The company also reduced its EPS outlook for fiscal 2011.
RadioShack is one of the most experienced and trusted consumer electronics specialty retailers in the U.S. RadioShack is well positioned on the back of its better locations and large footprint. Management has taken a strategic decision to roll out Kiosks for wireless products in majority of 1,450 discount stores of Target Corp. by mid-2011, in order to bolster the company’s top-line growth.
Moreover, RadioShack enriched its leading-edge wireless product portfolio by adding Apple Inc’s (AAPL) legendary smartphone iPhone 4. Though RadioShack is one of the late entrants in the tablet market, the company already included top brands like Apple’s Ipad 2, Motorola Mobility Holdings, Inc’s (MMI) Xoom and Research in Motion’s (RIMM) newly launched PlayBook. Such high-margin new products will boost the company’s revenues going forward.
However, stiff competition from Best Buy Co., Inc. (BBY) and Wal-Mart Stores, Inc. (WMT) along with a sequential decline in revenue and depleted earnings guidance for 2011 are major headwinds for the company. Moreover, the company’s breach of contract with T-Mobile, which has not yet been resolved, will be a cause of concern going forward.
We maintain our long-term Neutral recommendation for RadioShack. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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