RadioShack comeback falters

RadioShack Corp.’s first-quarter loss widened to $98.3 million as sales slid for the ninth straight quarter, raising concerns that the electronics chain can’t pull out of a tailspin.

The net loss in the three months through May 3 expanded to 97 cents a share, from a loss of $28 million, or 28 cents, a year earlier, the Fort Worth, Texas-based company said today in a statement. The deteriorating results sent the shares tumbling as much as 22% in early trading.

Chief Executive Officer Joe Magnacca, grappling with competition from Amazon.com Inc. and Wal-Mart Stores Inc. as well as sluggish demand for electronics, has pledged to boost efficiency, cut costs and develop new merchandise. The turnaround effort hit a snag earlier this year when creditors blocked a plan to close 1,100 underperforming stores, forcing RadioShack to shut as many as 200 instead.

“The results were worse than people thought,” Will Frohnhoefer, a special-situations equity analyst for BTIG LLC in New York, said in an interview. “It speaks to a flawed strategy.”

Excluding some items, the loss was 98 cents a share. The average of 13 analysts’ estimates compiled by Bloomberg was 51 cents. Sales fell 13% to $736.7 million.

Same-store sales in the quarter slid 14%, driven by declining traffic and “soft performance” in mobile phones, the company said today. Analysts estimated an 8.9% decline.

Instead of going head-to-head with Amazon, RadioShack should have focused on customers who lack credit and can’t order online, said Frohnhoefer, who has the equivalent of a hold rating on the stock.
 

‘Too Late’
 

“They’re trying to appeal to the wrong consumer,” he said. “It’s too late in the game to change the strategy.”

RadioShack’s operations consumed $37.8 million in cash, and the company ended the quarter with cash and equivalents of $61.8 million, down from $109.6 million a year earlier. The company said it had an additional $361.9 million of liquidity available through a credit agreement.

RadioShack shares dropped as low as $1.20 in early trading in New York. The stock plunged 41% this year through yesterday.

Magnacca, a former drugstore-chain executive, has brought in a new team of leaders and overhauled store design to revive the business. The company jokingly referenced the process of updating its aged stores in a 2014 Super Bowl commercial featuring Hulk Hogan and other 1980s characters.

Last week, the retailer said it’s teaming with product-developer PCH International of San Francisco to help startups design goods for direct sale to RadioShack stores.

The changes may not be enough to revive sales, said Anthony Chukumba, an analyst at BB&T Corp. in New York.
 

‘Compelling Product’
 

“There’s just not a lot of compelling product that’s come out recently, particularly in mobile, and RadioShack is a lot more focused in mobile” than competitors, said Chukumba, who has the equivalent of a hold recommendation on the shares.

The continuing slump has draw the ire of investors, who rejected the company’s executive compensation for the second year in a row, according to a filing yesterday. About 55% of votes were cast against the compensation plan in a nonbinding referendum at last week’s shareholder meeting, not counting abstaining investors.

Other consumer-electronics sellers have reported tepid demand in their most recent quarters as well. Best Buy Co.’s sales trailed analysts’ estimates as mobile-phone and tablet purchases waned. Sears Holdings Corp. said weak consumer- electronics sales pulled down its revenue, and HHGregg Inc. posted a 19% same-store sales decline in the category.

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