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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
RadioShack (NYSE:RSH) Q4:12 results were mostly in line with our expectations, as comp declines and margin erosion continued. Revenue was $1.30 billion, compared with our estimate of $1.32 billion and consensus $1.37 billion. Comparable-store sales were down 7.0%, compared with our estimate of down 3.0%, and last year’s up 2.2%. Non-GAAP EPS was $0.03 (excluding $0.67/share of one-time non-cash taxes), compared with our estimate of $0.00, and the consensus estimate of $(0.05).
RadioShack and Target (NYSE:TGT) will terminate their Target Mobile partnership in April. RadioShack operates 1,522 Target Mobile centers, and will begin closing the unprofitable centers on April 8, 2013. We expect some gross margin recovery, but lower overall sales levels may trigger de-leverage of corporate overhead.
We expect significant losses to continue in 2013. We are pessimistic that RadioShack can reverse its deteriorating mobility margins, as the company clearly has no control over smartphone or post-paid plan pricing. We think recent problems are traffic driven, and expect traffic to continue to deteriorate. Declining traffic should in turn lead to continuing comp declines, and we think that RadioShack’s modest Q4 profit signals that it will not see a return to profitability until next Q4 at the earliest. Notwithstanding the addition of a capable CEO, we think that the company’s store footprint will preclude a return to sustainable profits…(conclusion on the next page)
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