Radio Shack will not Rebound like Wal-Mart or Apple
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was not that long ago that Wal-Mart (NYSE: WMT), now about $75 a share, was trading for under $50. But the share price of the retail giant, with Warren Buffett buying, has risen 27.10% for the last quarter of market action. Over that same time period, the share price for Radio Shack, (NYSE: RSH), the electronic gear retail chain, has fallen by 50.38%. Do not expect Warren Buffett to be buying shares of Radio Shack.
At this point, the only likely buyers of Radio Shack stock will be day traders, speculators and those covering short positions. Year to date, Radio Shack is down by 72.12%. There is little, if any reason, to expect a recovery.
Radio Shack has the misfortune of having to compete against Wal-Mart, Target (NYSE: TGT), Apple (NASDAQ: AAPL) and Costco (NASDAQ: COST) in one form or another in its marketplace. It is hopelessly outclassed. In addition, company management has done little to make the shareholders happy.
Well-run retail chains like Family Dollar and Dollar Tree can flourish against the likes of Costco, Target and Wal-Mart. Even though Wal-Mart, Costco and Target focus on low prices, Dollar Tree and Family Dollar have carved out lucrative niches that have greatly rewarded the shareholders. Year to date, Family Dollar is up 16.34%. Over the same period, Dollar Tree has risen by 25.02%.
But, while Radio Shack operates in a niche like Dollar Tree and Family Dollar, it does not have any competitive advantages against Apple, Wal-Mart, Target or Costco. For the needs of most consumers in electronics gear, these other stores easily suffice. For those wanting a high end experience, there were 363 Apple Stores at the beginning of the year; and the number is growing.
There is nothing like the Genuis Bar experience at an Apple store when entering Radio Shack, either. About Radio Shack, one analyst wrote, "Walk into one of its stores. Try to contain your laughter. At least wait until you're out of the view of one of the company's beaten-down sales executives. I could soak up more inspiration spending time on Death Row than in a Radio Shack store."
Like Apple, RadioShack is focusing on mobile phones. Unlike Apple, Radio Shack is focusing on cheaper, lower-margin phones, not the high end products like the iPhone, although mobile phone sales for Radio Shack did rise by 3.3% in the quarter.
Again, unlike Apple, Radio Shack does not have new products coming out. Other than mobile phones, Radio Shack suffered a 26.5% plunge in sales for other consumer electronics gear. That will not happen for Apple when the iPhone 5 is introduced in the Fall, as is widely expected.
Recent earnings for Radio Shack featured a $21 million loss for the second quarter of 2012 when a $25 million profit was booked for Q2 2011. The dividend was just suspended. Shares fell to an all-time low of $2.46 after earnings were announced. While Radio Shack shares rebounded to about $2.65, last year the price was around $14.
There is now a short float of 43.18% for Radio Shack, with many obviously betting the share price will not recover. A short float of 5% is considered to be troubling for a company. By contrast, Wal-Mart, Costco and Target all have short floats of 2% or under. For Apple, there is a short float of just 1.33% as few are willing to establish a position against its share price. The only thing that shares of Radio Shack will soon be hitting is rock bottom, it appears.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Apple, Costco Wholesale, and RadioShack. Motley Fool newsletter services recommend Apple and Costco Wholesale. 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.If you have questions about this post or the Fool’s blog network, click here for information.