Radio Shack Corp. (NYSE: RSH) reported net quarterly income of $46.3 million this morning ($0.34 per share) compared to a year-ago net loss of $16.3 million ($0.12 per share) as the company continued digging itself out of a hole under new CEO Julian Day. It was good to see the gadget and accessory retailer reverse its 2006 loss from the same quarter a year ago, but the revenue numbers didn't do as well. The retailer saw a 9.4% decline in its most recent quarter, to the tune of just over $960 million as same-store sales fell 8.6% from the year-ago quarter.
In other words, the cuts and restructuring Day has put in place -- which were sorely needed -- seemed to have worked in the latest quarter, although sales slumped pretty badly. It's been said that any competent CEO can slash costs and tell his or her troops to find cuts, but only the long-term leader can take the reins when that ends and grow sales and revenue beyond the cost-cutting stage. Day has not had enough time to really progress that far, but his number is coming up soon.
Analyst estimates were for a $990 million quarter with an EPS of $0.26, so the retailer did beat earnings estimates for the quarter (though not revenue estimates). An interesting factoid for the retailer's just-completed quarter: gross margin improved to 51% while selling, general and administrative expenses declined 13%. Now, that is cost cutting if I've ever seen it. Still, Day referenced the retailer's weakness in gaining commissions on post-paid wireless customers. Radio Shack still relies on cellular sales as a large part of its business, in my opinion. Is the company a retailer or a wireless reseller? Estimates peg about 15% of revenue at Radio Shack coming from wireless sales (specifically, those from Sprint Nextel). That's almost a fifth -- and way too large for comfort when a retailer is joined at the hip of a cellular carrier that's having severe ups and downs.
RadioShack (NYSE: RSH), a company with a presence of through approximately 6,000 stores, closed at $21.45. RSH is expected to report EPS on 10/29. Sprint (NYSE: S) announced it expects a net loss of 337,000 post paid subscribers and lower annual revenue expectations. BMO Capital Markets say's "this is bad news for RSH as we estimate revenues related to S make up over half of wireless sales and over 15% of total revenues." RSH is expected to report EPS on 10/29. RSH November option implied volatility of 59 is above its 26-week average of 41 according to Track Data, suggesting larger price risks.
Costco (NASDAQ: COST) is expected to announce 4Q EPS of 83 cents on 10/10. Wachovia (NYSE: WB) said on 10/8 "COST's outlook for margin should be one of the key issues in focus on Wednesday's call." WB has an Outperform rating on COST. COST October option implied volatility of 33 is above its 26-week average of 24 according to Track Data, suggesting larger fluctuations.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
After hearing words of sorrow but optimism for the future from Best Buy (NYSE: BBY) executives this morning, I was wondering what the company has up its sleeve to shore up profits and keep growth happening. Sure, the services area of Best Buy's operations, growing relationships with customers and ensuring product mix stays consistent for the best margins possible are all good ideas. But one idea may be the jackpot of them all: cellphones.
Best Buy Mobile is more of an experiment than anything, but the largest consumer electronics retailer in the country wants to make sure its face is planted inside each and every future mobile phone user there is. To that end, it's setting up standalone mobile product sales centers to further its brand, earn more mobile phone commissions and really entrench itself as the mobile product provider of choice even as mobile phone subscriptions are showing signs of slowing growth. More and more advanced phones (and mobile emailers like Treos and BlackBerries) will become popular and the phone of old will become the electronic Swiss Army knife soon. Heck, that's already happening.
Best Buy's biggest foe here is Radio Shack (NYSE: RSH), which counts on mobile phone sales and plan sales to drive a healthy chunk of its revenue right now. Circuit City (NYSE: CC) dropped out of the game a few years ago, so for all the phones and plans that are not sold from mobile carriers like AT&T and Verizon, Best Buy and Radio Shack will be the big dogs. I'm of the mind that this is a fabulous strategy for Best Buy at relatively little cost compared to the potential upside.
In an SEC filing Goldman Sachs (NYSE: GS) Asset Management said it had upped its ownership of Radio Shack (NYSE: RSH) to 12.6% of the company's outstanding shares. In a separate filing Fidelity Asset Management has reduced its holdings in Radio Shack to 7.6% down from 15%. Goldman's actual share count in Radio Shack is around 17 million shares, of which the bulk was purchased following Radio Shack's March 31st quarterly release.
Radio Shack currently sports a $4.5 billion market capitalization and the stock has been one of the best performers this past 12 months. The company's 52-week low was $13.73, the high at $34.91. The stock is trading at $33.58.
CEO Julian Day joined Radio Shack last July with the strict mission to turn around this once ailing retailer. Mr. Day has undertaken several cost-cutting measures including trimming back the chain's 4467 store base. Closing unprofitable stores and consolidating stores where geographically sensible has contributed to this turn around.
One wonders if Mr. Day's mission is to turn around the company and sell it. Radio Shack is rumored to be looking for a possible suitor, possibly Dell (NASDAQ: DELL) . Dell is exploring new distribution methods and a store base of over 4,000 could be a step in the right direction. Goldman's recently increased share position after the stock has moved up so much is a strong vote of confidence for Mr. Day...
The Wall Street Journal (subscription required) reported that Time Warner Inc's (NYSE: TWX) Warner Bros. is planning to release movies to video-on-demand services at the same time as the DVD launch to see if they can expand one distribution pipeline without harming another.
Fidelity Investments, which was the third-largest shareholder in Dow Jones, has sold almost all its shares in the company, which is the target of a $5B takeover by News Corporation (NYSE: NWS), reported the New York Post.
Everyone who's interested in the Dell to Wal-Mart retail scenario wants to get a better idea of just exactly what Dell intends to do over there. We all know that Wal-Mart (NYSE: WMT) is the "Low Price Leader", so how does this play out for Dell (NASDAQ: DELL)? Being that my Dell corporate headquarters spy drones are down for repairs and my Wal-Mart corporate spy cams have been taken off line, I can only speculate on the intended direction which Dell's move is going to take. Over at Engadget the response to this move has been tepid, or leaning towards not well received.
First, let me say that at its root this Dell move is an excellent idea. By that I mean Dell has needed a direct outlet to the consumer for quite some time. Some of the tech sector analysts where aghast when they heard of this move because they had quickly assumed that Dell was changing over their entire marketing strategy to volume by low price but I assure you that's not what's happening here. Dell will still be building the lion's share of its desktop computers to customer order and shipping them direct. Wal-Mart, for the time being at least, shall only be handling a couple exclusive Dimension desktop models and I expect a select few notebook and laptop models. I predict also that as Dell earns Wal-Mart shelf space, there will be other Dell branded consumer electronics moving in there, but probably never their full desktop line.
Wal-Mart is historically demanding in their requirements for wholesale purchasing. They set the prices, the volume and the time tables. It's very much a take it or leave it world when selling to Wal-Mart. To me, it's kind of a sign of desperation that Dell has opted to go this route. I honestly thought that a Radio Shack (NYSE: RSH) scenario would play out to a much greater advantage for Dell than this Wal-Mart strategy. Is this a sign that as consumers we're expected to cheapen our expectations when thinking of Dell? I assure you that is what will happen. I'm expecting to spend about $2000 on a new PC next year. Perhaps it will be a Hewlett-Packard (NYSE: HPQ) after all.
Now, if you'll excuse me, I have to get to work on these spy drones.
I have written over the past few months that Dell Inc. (NASDAQ: DELL) is dead money at least for this year, and possibly next. The company has structural issues to address before sustainable growth is viable again. The question remains, what has been holding the stock up? For one, the stock market rally. Also, a raft of analysts "seeing a potential turn around." Potential is one thing, probable is another.
Dell built itself into a huge, global player through a direct sales model, eliminating the middleman and the attendant costs associated with the middleman. Dell soared as it embraced both the enterprise and the consumer segments. Dell began to fall victim to lousy service and follow through. Its call-centers jokingly became known as Dell's hell-centers. If the model is direct, the corresponding service must be excellent or customers are vulnerable to other vendors. So, with Apple Inc.'s (NASDAQ: AAPL) mega-success with the retail store model and Hewlett-Packard's (NYSE: HPQ) and Gateway's (NYSE: GTW) strong positioning within major retailers like Best Buy, what can Dell do to forge a presence? Is Radio Shack the answer?
Radio Shack has been a decent turn around story as management has carved out its excess costs and begun to realize some leverage to its earning base. If Dell were to acquire Radio Shack (NYSE: RSH), it would be an instant 4,000 stores for distribution. But it is not as easy as it sounds.
RadioShack Corp.'s (NYSE: RSH) past problems are still lingering for the oddball retailer, but give it some credit (I think). The retailer's latest quarter showed profit growth amid changes like closing stores and selling more popular electronics items. With new leader Julian Day at the helm, under-performing stores are seeing the axe while a focus on personal electronics and wireless sales are helping the company stay afloat.
I have to admit, many recent visits to the retailer have resulted in rabid-dog sales associates pushing new cellphones and contracts faster than I can say no. I hope RadioShack is not relying solely on wireless sales to prop up sales and profits, but that is the impression I've had lately.
Although I've only been here for the second half of it, I have been pleased to find out that your own BloggingStocks team is celebrating one full year of bringing you the best financial insight on the web. We'd like to think that we've had some responsibility for the healthy bull run that the markets have undertaken over the last 12 months. I myself certainly have had a great deal of fun so far. Thank you for letting me be a part of a web site that has met with your approval.
I thought it appropriate that I nominate myself for "The most unlikely financial blogger of the year" award. Someone who has been instrumental in growing this web site picked up on my no-holds-barred, in-your-face style and suggested that I might find a niche here. I suspect that it's gone pretty well, based simply on the fact that the checks still clear. I hope the readers have enjoyed at least some of what I've written because the fact of the matter is that I really and truly enjoy writing for you.
In celebration of our anniversary, the management team has suggested that we writers may indulge in some outlandish prognostications for you. If you haven't picked up on the fact yet, I'll tell you that outlandish is much of what I do.
Here are some on the edge financial predictions for the next twelve months that I have to offer you:
RadioShack Corp. (NYSE: RSH) has had some disastrous years recently; frankly, it's hard for me to believe the company stays in business in an era of Best Buy and Wal-Mart. Except for small electronic parts and miscellaneous gadgets, does anyone shop at RadioShack for anything? Judging by the small parking lots at the RadioShacks I see, the foot traffic is pretty darn small. Yet, the chain just keeps on going and going. Perhaps partnering with Cingular Wireless and Sprint Nextel is keeping margins afloat in some way.
Since the firing of RadioShack's former CEO based on resume falsification in the midst of a terrible-performing year, RadioShack recently landed Oxford-educated Julian Day (subscription required) to take the helm and fix the fortunes of the electronics retailer. Day's already started the task by cutting costs at every angle and by instituting very strict financial controls, as the results for RadioShack's recent fourth quarter show. Earnings were up 60% YoY (year-over-year) on $1.5 billion in revenue, and RadioShack shares are up 61% in 2007.
Can this rapid turnaround continue? With Day at the helm, it probably will. Most likely, more underperforming stores will be closed and advertising spending will be cut and spent more responsibly. Alongside that will be Day's penchant for tight inventory management at all stores and distribution centers. In other words, Day is instituting standard management (competent) procedures to help get the retailer consistently in the black. So far, after eight months on the job, he's succeeding.
MOST NOTEWORTHY: RadioShack Corp (RSH), Juniper Networks, Inc (JNPR), H.B. Fuller Co (FUL) and Sepracor Inc (SEPR) were today's more notable downgrades:
Morgan Stanley downgraded RadioShack (NYSE: RSH) to Underweight from Equal-Weight on concerns over the company's wireless fundamentals and top-line growth.
Juniper Networks (NASDAQ: JNPR) was downgraded to Strong Sell from Buy at Matrix USA. The firm sees downside to the intrinsic value calculation of $12 given the company's deteriorating fundamentals.
H.B. Fuller Co (NYSE: FUL) was cut to Sell from Hold at Gabelli following a meeting with management to reflect the recent management exists and the broker's expectation for a challenging first-half of 2007.
Sepracor (NASDAQ: SEPR) was cut to Underperform from Market Perform at Friedman Billings, as the firm believes generic availability of Ambien may be a bigger challenge to Seprecor's Lunesta than investors expect.
OTHER DOWNGRADES:
Jackson Hewitt Tax Service Inc (NYSE: JTX) was cut to Underweight from Market Weight at Thomas Wiesel as they believe the potential near-term competitive trends coupled with potential issues with rising financial product contribution will weigh on valuation.
Bear Stearns cut Cerner Corp (NASDAQ: CERN) to Peer Perform from Outperform.
Matrix USA downgraded InfoSpace, Inc (NASDAQ: INSP) to Hold from Buy on valuation.
Prudential cut Unilever plc (NYSE: UL) to Neutral from Overweight.
Breen Murray downgraded Century Casinos, Inc (NASDAQ: CNTY) to Hold from Buy.
Cowen downgraded PeopleSupport, Inc (NASDAQ: PSPT) to Neutral from Outperform based on near-term visibility concerns.
Note: The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.
Volatility Index S&P 500 Options-VIX up 1.17 to 10.44.
Applied Materials Inc.-(NASDAQ:AMAT) option prices suggests risk levels below average into EPS.
Applied Materials is expected to report EPS of .27 cents tonight after the close. Stifel Nicolaus has a buy rating with a $23 price target on Applied Materials. AMAT February straddle is priced at .85 above its theoretical value of .47 cents. Applied Materials March option implied volatility of 32 is near its 26-week average of 30 according to Track Data, suggesting larger price fluctuations.
Nvidia Corporation -(NASDAQ:NVDA) option prices suggests risk levels are flat into EPS & Outlook
Nvidia, a designer, developer and marketer of graphic processing units, is expected to report EPS of .42 cents tonight. American Technology Research says "Nvidia is very well positioned entering in 2007 given its favorable exposure to the PC segment entering a large upgrade cycle, favorable exposure to the gaming segment with PS3 ready to ship high volume, and increasing share in the consumer mobile segment." Nvidia February straddle is priced at $2.15, above its theoretical value of 41.49. NVDA March option implied volatility of 45 is near its 26-week average according to Track Data, suggesting reduced risk levels after EPS.
Having just completed the Top Picks report for 2007 – the 24th consecutive year I have surveyed the newsletter advisors for their favorite stocks -- I thought I would share some observations to help readers best use the information in this feature.
And over the next few days, I will post articles to share observations on the stocks and sectors chosen, discuss the participating advisors, and highlight some of last year's top performers to help guide you in assessing this year's report.
I'll begin today by noting some caveats that should be kept in mind by those who are considering buying stocks from among the list of Top Picks. The advisors who have participated in this year's project were asked to submit a favorite speculative and/or conservative stock for the year ahead.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
RadioShack
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