RadioShack Corporation (NYSE: RSH) reported earnings for the third quarter the other day, and according to the bullet points of this article, the electronics retailer beat analyst expectations by three pennies. Earnings came in at $0.39 per share. And I say, so what?
Why do I say this? Well, to be honest, RadioShack has never been my favorite retail investment idea. No, I've never had a problem at any of the company's locations, but seriously, how often do you hear people talk about RadioShack? I don't hear many people talk about the place, I can tell you that. Best Buy Co., Inc. (NYSE: BBY), Wal-Mart Stores, Inc. (NYSE: WMT), Target Corporation (NYSE: TGT) -- these are the retailers people think of first when they think of electronics, fair or not. At least, that's what I've been getting lately. And here's an interesting wrinkle to the earnings report. Sales were driven by those digital converter devices that many households will need to use their television sets once digital broadcasting begins in February 2009. Not that this is an original observation, but when I read that, I immediately thought to myself "well, where does RadioShack go from here?" The company is going to find it tough to stand out among the crowd in the next few months. Brand equity is really going to come into play. The brand equities of the aforementioned competitors will aid them in bringing traffic onto their sales floors. When it comes to a day like Black Friday, which is the kickoff to the holiday shopping season, I think consumers will be most excited about the deals they can get at a Wal-Mart or a Target and not the ones they can get at a RadioShack.
Sure, that might sound obvious, but it's one of the reasons why I wouldn't want to put money down on RadioShack. The company's stock is near a 52-week low, but it's not a buy. Management is trying to improve its standing in the eye of the electronics consumer, but it'll be a long time before that happens. Besides, the bigger stores simply have more to offer both in terms of shopping experience and one-stop buying. There theoretically will always be a place for a RadioShack. But there's not a place for it, at least at this time, in my portfolio.
Disclosure: I don't own any company mentioned; positions can change at any time.
Going into this morning's earnings announcement, analysts had been expecting to see the company show earnings of 26 cents per share, but the company shocked everyone by coming in well above those estimates, with a reported 35 cents per share for the quarter. Wall Street is rewarding the stock nicely this morning, pushing shares up over 14% in early morning trading.(See more of today's earnings news).
While the company was able to show a nice increase in sales, it did caution investors that the current economic condition is challenging, and that it expects this to remain the case for the foreseeable future. It has been tough for RadioShack recently to compete with stronger rivals such as Best Buy (NYSE: BBY), but the company showed good signs of life during the quarter by posting a 6.4% increase in sales. This is a very good sign for the company, which has been struggling the past several quarters.
MOST NOTEWORTHY: IberiaBank, Dynamic Materials and Barr Pharmaceuticals were today's noteworthy upgrades:
Keefe Bruyette upgraded shares of IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform after the company announced that Pulaski has assumed the insured deposits of ANB Financial of Bentonville, Arkansas.
KeyBanc upgraded Dynamic Materials (NASDAQ: BOOM) to Buy from Hold citing stability in base business, valuation, and the added benefit associated with a European competitor being acquired.
Cowen raised Barr Pharma (NYSE: BRL) to Outperform from Neutral citing the recent pullback.
OTHER UPGRADES:
Goldman added McGraw-Hill (NASDAQ: MHP) to its Conviction Buy List.
RBC Capital raised RadioShack (NYSE: RSH) to Sector Perform from Underperform.
Sirius Satellite (NASDAQ: SIRI) was upgraded at Merrill Lynch to Neutral from Sell.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
Going by ad campaigns alone, you would think that every person -- or, at least every cool person -- had abandoned their Windows PCs and hoisted themselves onto the Macintosh bandwagon. Not so. The truth is that PCs far outnumber Macs in the market. The big-business worlds of finance, law, medicine use predominantly PC, while the areas of video production, web design and art use Mac. These computers do most of the same things (play games and DVDs, word-process, create web pages, store and play music) but they are completely different operating systems. Even though Apple computers now include the Intel processor that makes it possible to use Windows-only applications, it can still be hard to compare products.
But what about the companies themselves? What does the Apple brand signify that the Dell brand does not? And vice versa.
Apple (NASDAQ: AAPL): Providing innovative products and a user-friendly interface, Apple has turned the whole computer thing into a fashion accessory. For someone who used Dell products for years and then switched to Mac, the difference is like night and day. A Mac is so easy to use. With a clean interface, a near-universal compatibility with external products and tools, these computers are a beautiful breeze. And now that Macs include Intel processors, one can switch back and forth between a Windows interface and a Mac interface, making previous incompatibilities (software, games, etc.) now perfectly compatible. And when it comes to customer service (see below) Apple really socks the house.
Shares of electronics retailer Radioshack (NYSE: RSH) are trading lower in premarket trading after putting up less than impressive earnings this morning.
The company was able to slightly come in above analyst estimates, with 30 cents per share compared to the forecast 29 cents per share, but the rest of the report left much to be desired. Compared to its first period last year, earnings were down slightly, as the company was able to show earnings of 31 cents a share last year. Revenue was also lower, by 4.4%.
One area that analysts always look at in judging a company's performance is same-store sales. Radioshack was weak in this area as well, posting a drop of 4% year-over-year. The company blamed this decline on lower demand for its Sprint post-paid wireless contracts and related accessories. Excluding this weak part of its business, Radioshack stated that it would have actually seen a 0.7% increase in its same-store sales.
RadioShack Corp. (NYSE: RSH) shares are trading higher this morning after the company posted a fourth-quarter profit of $101 million, or 77 cents per share, beating analyst expectations of 72 cents per share. RSH was helped by lower operating costs, which counteracted a drop in same-store sales. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on RSH.
After hitting a one-year high of $35.00 in June, the stock hit a one-year low of $13.31 in January. RSH opened this morning at $17.03. So far today the stock has hit a low of $17.00 and a high of $19.00. As of 10:40, RSH is trading at $18.50, up $2.76 (17.5%). The chart for RSH looks neutral and improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 8.7% return in just two months as long as RSH is above $15 at April expiration. RadioShack would have to fall by more than 18% before we would start to lose money.
RSH hasn't been below $15 by too much in the past year and has shown support around $15.10 recently. This trade could be risky if the US economy continues to worsen, but even if that happens, this position could be protected by the support the stock might receive due to its positive announcement today.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in RSH.
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.
MOST NOTEWORTHY: RadioShack (RSH), Weyerhauser (WY), Goodyear Tire (GT), Hot Topic (HOTT) and Unilever (UL, UN) were today's noteworthy downgrades:
Citigroup downgraded RadioShack (NYSE: RSH) to Sell from Hold on valuation as they believe shares have priced in a more aggressive top-line recovery than the company can deliver over the next 12 months and that margin improvement is likely to slow.
Merrill downgraded Weyerhauser (NYSE: WY) to Neutral from Buy based on the tighter credit environment and the impact on a potential containerboard divestiture or merger.
Matrix downgraded shares of Goodyear Tire (NYSE: GT) to Sell from Hold to reflect rising oil prices and negative fundamental trends.
AG Edwards downgraded Hot Topic (NASDAQ: HOTT) to Sell from Hold to reflect negative performance momentum and a lack of back-to-school prospects.
Credit Suisse downgraded Unilever (NYSE: UN, UL) to Underperform from Neutral as their analysis suggests the company continues to lose market share...
MOST NOTEWORTHY: Arthur J. Gallagher (AJG), Akamai Technologies (AKAM) and three railcar companies were today's noteworthy initiations:
Citigroup believes Arthur J. Gallagher (NYSE: AJG) is at a disadvantage to smaller rivals who accept contingent commissions and lacks the global presence of larger competitors, and started shares with a Sell rating and $25 target.
Friedman Billings believes Akamai (NASDAQ: AKAM) can leverage its broad product portfolio, global network deep pockets and extensive track record to remain the leader in the content delivery market, starting shares with an Outperform.
MOST NOTEWORTHY: RadioShack Corp (RSH), Visual Sciences (VSCN), Alcan (AL), U.S. Celluar (USM) and Westwood One (WON) were today's noteworthy downgrades:
Banc of America downgraded shares of RadioShack (NYSE: RSH) to Sell from Neutral and lowered their target to $18 from $26 as they believe cuts to labor costs and advertising expenses will make it more difficult to overcome declining wireless trends.
Friedman Billings cut Visual Sciences (NASDAQ: VSCN) to Market Perform from Outperform on valuation. Citigroup downgraded Alcan to Hold from buy on the acquisition news.
Soleil cut U.S. Celluar (AMEX: USM) to Sell from Hold on valuation.
Westwood One (NYSE: WON) was downgraded to Sell from Hold at Citigroup based on management distractions and weak fundamentals...
OTHER DOWNGRADES:
Cowen removed ImClone Systems (NASDAQ: IMCL) from its Focus List, as the firm believes Erbitux is now more in line with consensus but said financials remain uninspiring.
With the one possible exception of the move into Wal-Mart Stores (NYSE: WMT), I'm getting very strong messages of positive change from Dell Inc. (NASDAQ: DELL). What I'm seeing is a company that is pushing hard in multiple directions to find the strategies that will return it to good standing. If Dell can untangle some sluggish bookkeeping and get its corporate interior straightened out, it can then forge straight ahead, unrestrained by its attempts to heal its marketing weaknesses. There's a lot of upheaval going on at Dell right now, but it's certainly not all bad.
Dell's move into Wal-Mart has met with mixed response. At first I myself didn't like the move but that's probably mostly because I wanted Dell to align with Radio Shack Corp. (NYSE: RSH). Given the fact that computer prices have reached the level where a discount retail chain can sell them for profit, I guess there's no reason why Wal-Mart shouldn't be the one to do it. As long as Dell keeps its consumer direct options open so that folks like me can "custom" build one, I'll concede that the Dell/Wal-Mart alliance may become a good one.
A definite positive move that Dell has recently undertaken is its decision to preinstall the Ubuntu Linux operating system. Linux seems to be a preferred operating system in circles of web "professionals." I have the distinct pleasure to rub elbows with some of the internet's best writers, and the more I do that, the more I find that the busiest ones seem to prefer Linux. The Linux change and other customer focused moves seem to be driven by input that Dell receives via its own community forums. "We are responding directly to feedback from customers," Dell spokesperson Anne Camden said.
Latest in a series of moves by Dell to become more deeply consumer responsive is their decision to allow consumers to "opt out" of preinstalled programming, sort of like an operating system line-item veto. Based on the success of a "no software preinstalled" option that Dell promoted with its XPS systems a year ago, Dell has determined to take the favorable response to that scenario a step further and will extend it to Dell Inspiron and Dimension lines. Analysts are speculating that there's a remote possibility that this change will mean a revenue drop for Dell, but there's little credence to that assertion. Besides, the focus here is a realignment of Dell with the consumer, and if done successfully, that's where all the gold is hidden.
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Shares of electronics retailer 
RadioShack
With the one possible exception of the move into 
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