RadioShocked! Consumer Electronics Retailer Flops During Holiday Season
RadioShack preannounced dismal fourth-quarter earnings results, indicating a company in serious flux.
RadioShack (RSH) -- a.k.a. the place that used to ask you for your phone number when you bought batteries -- preannounced lousy, and awfully confusing, fourth-quarter earnings results which indicate a company in serious flux.
RadioShack said fourth-quarter revenues were $1.39 billion, which is about $40 million above consensus.
However, the company also said that earnings will come in at just $0.11 to $0.13 per share, the midpoint of which is 68% below consensus. RadioShack is experiencing a significant margin squeeze, and said gross margins will be about 35% versus 41% in the fourth quarter of 2010.
The result: a stock that's down by an astounding 29% to $7.28 this morning.
RadioShack attributes the gross-margin squeeze to the following issues:
- a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices;
- a higher percentage of mobility sales in the overall revenue mix, largely driven by the company's expansion of Target (TGT) mobile centers;
- the impact of a more promotional holiday season.
In addition, RadioShack specifically noted that the Sprint (S) postpaid wireless business underperformed due to fewer activations.
On the plus side, RadioShack said that it's seeing "growth in new iconic handsets, incremental sales growth from new partner Verizon Wireless (VZ), higher revenues from AT&T (T) and higher sales of tablets and e-readers."
RadioShack is also suspending its share repurchases after burning through approximately $500 million on buybacks over the past two years.
But most importantly, CEO Jim Gooch said, "We recognize that certain smartphones and other mobile devices, mainly tablets and e-readers, are a growing mainstay of consumer electronics purchases, and are significantly changing the margin profile of our mobility business."
Now what's interesting about this is that it paints a rather nasty picture of the retail profitability of the only growth engine left in consumer electronics -- mobile gadgets like smartphones and tablets and e-readers. So that growth engine is driving units, but not taking profits along for the ride.
Most immediately, this is bad news for Best Buy (BBY), because it's already suffering from the following issues:
- TV sales stink;
- PC sales, ex-Apple (AAPL) are awful (see: This Is the Bad News Microsoft Was Telegraphing);
- Amazon (AMZN) is taking significant electronics market share with its take-no-prisoners attitude toward growth (see: Why Amazon's Low Margins Deserve Praise);
- Video game sales are in the toilet (see: Video Game Sales Collapse, Suggesting One Lousy Cycle).
What makes RadioShack's and Best Buy's struggles look especially bad is that they've failed to thrive, or at the very least just maintain, in a period following the demise or shrinking of numerous competitors, including Circuit City, Blockbuster, Movie Gallery, Ritz Camera, F.Y.E., and Office Depot (ODP).
I'd attribute this dynamic to two things. The first is the emergence of Apple as the most innovative company in the recent history of retail. Apple Store sales rose 59% in the December 2011 quarter, and that means more consumers are bypassing traditional electronics middlemen when hunting for the hottest gadgets on the planet.
The second is the aforementioned Amazon, which regularly sticks its middle finger in the face of every Wall Street analyst complaining about its margins. Today, Amazon will report its fourth-quarter earnings, and I encourage you to zero in on the company's Electronics and Other General Merchandise segment, which has been growing at on obscene rate at the expense of the brick-and-mortar world.
Fighting Apple in brick-and-mortar, and Amazon online?
That's gotta stink!
Some Random Notes:
1. Is anyone else in love with Research In Motion's (RIMM) new Porsche-designed BlackBerry P'9981? That thing is hot, and RIM management needs to figure out a way to mass produce it worldwide at a reasonable price, ASAP. I'm iPhone for life, but even I have to admit that Porsche knocked it out of the park with the P'9981.
2. The ARM Holdings (ARMH) numbers and guidance looked pretty solid to me. It's probably not up more because strong results were telegraphed by key members of its supply chain, like Apple and Qualcomm (QCOM).
3. THQ (THQI) just received a de-listing notice from the Nasdaq. Man, it seems like yesterday that this company was killing it with Cars, Saint's Row, and Company of Heroes. Electronic Arts (EA) and Activision (ATVI) should step in to make a deal -- they can't lose at this price.
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