Who’s Screaming for Help?
Gayron is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In this online era, the brick and mortar specialist retailers are screaming for help in a major way. The online retailers have the brick and mortar retailers searching for new strategies to keep up with the online shopping frenzy. Some of the retailers waited a little too long before trying to make adjustments, which is costing them now. RadioShack (NYSE: RSH) is one of those retailers who is screaming for help and is certainly looking for it. RadioShack’s market cap is still dwindling away, dropping from $300 million to $273.2 million, a $26.8 million drop in just one quarter.
As I’m writing this article I received an advertising e-mail from RadioShack stating, “Big savings, No contract, Win-win.”
Miss after miss
RadioShack has been on a streak of missing the Street’s estimates for a few years.
“We expect the turnaround to continue for the next several quarters, but a streamlined assortment of products — with more emphasis on categories like digital fitness and accessories like headphones and speakers — should be available in stores by the critical holiday season, during which retailers can make up to 40 percent of all revenue,” Chief Executive Joe Magnacca said in a call with analysts.
RadioShack missed analyst’s estimates in the first quarter. (For more information, see “Is This Retailer Finished?”) The second quarter seemed to be a little different.
For the first time in a few years, its revenue beat analyst’s estimates. RadioShack reported an increase in revenues up $844.5 million, versus analyst’s estimates of $816.1 million. Most of RadioShacks’s revenue gains were driven by promotions and markdowns in an attempt to rid its stores of merchandise and drive traffic into its stores.
The third quarter's average analyst’s estimate for revenue is $881.0 million and the average EPS analyst’s estimate is -$0.25. I strongly believe RadioShack will continue the trend of missing analyst’s estimates as we go forward. This is where the good news ends and the bad news begins.
Net loss for the second quarter totaled -$53.1 million, or $0.53 per share compared to a net loss of -$21 million, or $0.21 per share in the same period in 2012. The loss is two times more than what analysts expected of $0.24 per share.
“The quarter was designed to clear out unproductive inventory and test markdowns and discounts to help improve promotions going forward,” Chief Executive Magnacca said in the same call with analysts.
The second quarter ended with $713 million in total debt and $1.6 billion in total current assets. The debt rose up by $1 million from $712 million in the first quarter, and total current assets fell $100,000 from $1.7 billion in the first quarter. RadioShack’s cash on hand fell to $432 million compared to $435 million at the end of March, a 7% drop in just three months.
RadioShack always misses the street’s expectations, but its rival Best Buy (NYSE: BBY) also fell short of the street’s expectations and may do it again.
"As we look forward to the second quarter, while not providing financial guidance, we believe that the ongoing investment in price competitiveness that contributed to our gross profit and EPS declines in the first quarter will continue into the second quarter," Chief Financial Officer Sharon McCollam said in a statement on May 21.
Let’s view Best Buy’s first-quarter results because the second-quarter is yet to be reported.
Best Buy reported that revenues fell 10% to $9.4 billion from $10.4 billion last quarter, missing the street’s estimate of $10.7 billion. Its explanation for the miss is the loss of revenue from 49 large format stores that were closed in 2012, the shift of the Super Bowl into 2012’s fourth-quarter, and the loss of revenue from 15 large format stores that were closed last year in Canada.
Net loss for the first-quarter was -$81 million, or $0.24 per share compared to net earnings of $158 million, or $0.46 per share in the last quarter of last year. Analysts expected $0.25 per share and Best Buy missed by $0.01, or 4%.
Best Buy ended the first-quarter with $1.1 billion in total debt and $10 billion in total current assets. The debt fell by $536 million from $1.7 billion in the fourth quarter, and total current assets fell $310 million from $10.3 billion at the end of 2012. Its cash on hand fell to $908 million from $1.4 billion in the fourth quarter, a 34% drop in just three months.
Both RadioShack and Best Buy are trying to adjust things to fit in this new online shopping frenzy that is created by rivals like Amazon (NASDAQ: AMZN). Both RadioShack and Best Buy have no room to compete with an online retailer who sales the same products, or do they?
Amazon has the same products that almost every specialty retailer has, but it has new and used items, which makes the prices vary. With the new price matching programs floating around Amazon might feel pressure. Physical shopping abilities coupled with price matching gives Best Buy a chance that RadioShack does not have, because of its limited supply of products.
Fancy photos of the products are nice but the ability to touch and experience the product first-hand is better, in my opinion. But wait, taking the product home as soon as you pay for it, is definitely better than paying for a product and then waiting to receive it.
While Best Buy is closing locations to cut back, Amazon is expanding. Amazon launched its marketplace in India, www.amazon.in, providing customers a convenient and trustworthy online shopping experience and Indian retailers of all sizes a robust and scalable platform to sell their products online with no listing fees and pay-as-you-go fulfillment services.
The Foolish conclusion
No matter what kind of investor you are, both Best Buy and Amazon have something to offer. Both of these specialty retailers are an excellent mix of high growth. RadioShack on the other hand has nothing else to offer investors.
Although this year has been a challenging one for RadioShack and American consumers, Best Buy and Amazon still manage good domestic sales growth. In spite of the omnipresent anxiety of a Chinese economic deceleration and the growing fiscal distress in Europe, Amazon is also expanding its global operations, which should only render a supplementary incentive looking ahead. Ergo, both Best Buy and Amazon are imperative buys on any stock price decline.
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Gayron Wainwright has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!