Radio Shack Is Confident It Can Resurrect Itself
By Sam Lewis
Famed electronics retailer lays out plans to rebound after less than profitable third-quarter
Third-quarter earnings were reported by Radio Shack on Tuesday, Oct 22. The report shows an enormously widened net loss in the quarter, as the struggling retailer continues to work on and implement its turnaround plans.
Radio Shack reports its loss for the quarter to be $112.4 million, or $1.11 per share. That more than doubles the company’s loss of $47.1 million, or 47 cents per share for the same quarter of 2012. Analysts at FactSet were expecting a much smaller loss at 37 cents per share. Radio Shack also failed to meet Wall Street’s expectations of revenue. Analysts predicted revenue of $893.2 million, but Radio Shack only mustered $805.4 million for the quarter. That marks a 10 percent drop compared to the third-quarter of last year’s $898 million. Radio Shack didn’t offer any guidance for rest of the year. However, Thomas Reuters' consensus calls for a $1.22 per share loss for the full-year. All of these losses resulted in the company’s stock dropping more than 20 percent by midday during Tuesday’s trading. However, all is not lost.
What Are Radio Shack’s Plans To Remedy Itself?
The company is obviously in need of some dramatic turnaround efforts, and CEO Joseph Magnacca intends to act upon his plans post haste. "We are moving forward quickly and as planned with our turnaround efforts,” he says in the company earnings press release. The company plans to drive the turnaround effort with five pillars: repositioning the brand, revamping the company’s product assortment, reinvigorating the store experience, operational efficiency, and financial flexibility.
- Repositioning the brand — the company is already moving forward with this portion of the turnaround. The company created a partnership in May with singer Robin Thicke to promote the Pill speaker from Beats by Dr. Dre. This was followed by partnerships with tennis star Serena Williams and rapper 2 Chainz. Historically, the company has not made partnerships with celebrities, but in an effort to connect with a youthful audience, the company has done so to rid itself of its dated impression.
- Revamping the product assortment — Radio Shack is actively reducing the number of products each store carries, dropping down to roughly 3,500 SKUs from 4,500. The company will remove older products, and carry fewer new ones to reduce clutter within stores. The company also plans to hard sell items in sound, digital fitness, remote controlled vehicles, tablet computers, and innovate its own brands with new innovations and better packaging.
- Reinvigorating the store experience — the electronics retailer has been working to rebrand its in-store experience by introducing a cleaner look through new product displays. In addition, the company wants to make stores relevant by carrying a better assortment of items customers wish to explore. This includes concept stores in New York, South Hampton, NJ, Boston, and Fort Worth. Every store will be remerchandised in a more organized manner, and 2,000 additional stores will be completely redecorated. Finally, by the end of the year, Radio Shack expects to open more than 100 concept and brand statement stores.
- Improving operation efficiency — Radio Shack is working to reduce costs and boost efficiencies company wide. The company has reviewed its distribution system and plans to implement changes quickly. Rather than each Radio Shack store receiving one shipment per week, stores will begin receiving shipments up to three times per week this fall, ensuring stocked items are always available. Also, promotional items will ship in different boxes than regular items. The company is confident this change will improve in-stock performance along with improving customers’ in-store experience.
- Improving financial flexibility — the retailer made it very clear that it currently has ample liquidity and its future liquidity remains strong. It was also made clear that Radio Shack has debts coming due in two years, which are being addressed by an $835 million loan from a consortium of lenders led by GE Capital. The new financing will ensure the company’s liquidity remains strong in the future, allowing the company to execute its turnaround.
Cutting costs, switching up management, and updating stores and product selection are all actions Radio Shack has taken to make a comeback in a tough electronics retail climate featuring Amazon and recently turned around Best Buy. While the company has a plan of action, it has yet to yield any results. “We strongly believe our new retail and consumer-centric strategy has us heading in the right direction. We've made significant progress in the third-quarter and will continue to focus on execution during the all-important holiday selling season,” Magnacca concludes. The third-quarter of 2013 was anything but kind to Radio Shack, but it seems the company has the plan and the financial backing to implement an attempt at turning at bringing the electronics retailer back to relevance.