Troubled consumer electronics retailer, RadioShack (RSH), rose Tuesday morning on an upgrade by Merrill Lynch. But something seems fishy.
The small-box retailer made a turnaround by moving towards mobile products and away from traditional consumer electronics. However, increasing competition in this sector and changing consumer awareness has compressed margins for distributors like RadioShack. Most of this market is moving online or elsewhere.
RadioShack’s inventory has been building (up 13%) since the second quarter while debt continues to rise with $355 million coming due in the next year. Its cash position is weak and management has been slow to respond to the dynamic environment, going ahead with approved share repurchases of $500 million last year.
Management has responded, announcing last week that CEO James F. Gooch would be stepping down. Gooch made headlines last year after pocketing nearly $6 million despite competitive headwinds for RadioShack. The high uncertainty surrounding a second turnaround for Radioshack seems to contradict its buy rating.
Or is the market simply overreacting to a marginal piece of good news? The tech and communications sectors were both down. Sprint (S) is experiencing decline from ratings changes. Intel (INTC) is reacting similarly after being lowered to underperform. Nvidia (NVDA) followed as did Netflix (NFLX) after a brief rally.
RSH’s decline is visualized below with earnings marked “E” and dividends “D”:
1. RadioShack Corp. (RSH, Earnings, Analysts, Financials): Engages in the retail sale of consumer electronic goods and services through its RadioShack store chain and kiosk operations. Market cap at $206.84M, most recent closing price at $2.08.
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2. Intel Corporation (INTC, Earnings, Analysts, Financials): Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. Market cap at $112.62B, most recent closing price at $22.51.
3. NVIDIA Corporation (NVDA, Earnings, Analysts, Financials): Provides visual computing, high performance computing, and mobile computing solutions that generate interactive graphics on various devices ranging from tablets and smart phones to notebooks and workstations. Market cap at $8.16B, most recent closing price at $13.17.
4. Netflix, Inc. (NFLX, Earnings, Analysts, Financials): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $4.08B, most recent closing price at $73.52.
5. Sprint Nextel Corp. (S, Earnings, Analysts, Financials): Offers wireless and wireline communications products. Market cap at $15.27B, most recent closing price at $5.09.
Written By Freda Ding
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RSH has issues far more serious than those other companies getting downgrades. I do not think it will survive. Its biggest competitor, BBY – best buy – also has trouble. All customer shopping is moving online and RSH is having trouble adapting.