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Strategies & Market Trends : Can you beat 50% per month? -- Ignore unavailable to you. Want to Upgrade?

To: Smiling Bob who wrote (11209)	7/19/2007 7:55:57 AM
From: Smiling Bob	Read Replies (1) \| Respond to of 19257

RSH - two news links today One on former board member child porn charges The other with Cramer aiding in hawking old RSH inventory. edit found this on YHOO bd --- RADIOSHACK MUST LOOK BEYOND CUTS Wednesday July 18, 2007 07:02:10 EDT Jul 18, 2007 (Fort Worth Star-Telegram - McClatchy-Tribune Information Services via COMTEX News Network) -- Can a publicly traded company cut costs too deeply? RadioShack may be shaping up as a test case. The company's stock has been on a tear after lower expenses sharply boosted the bottom line. The stock has gained 80 percent this year and currently ranks fourth-best among companies in the Standard & Poor's 500. But shares have been giving ground lately after several analysts turned negative and one even cited poor employee morale as a factor in his downgrade. RadioShack has also been one of the most shorted stocks on the New York Stock Exchange for a while, an indication that many brokers are betting that it's overbought and due for a pullback. Even bond analysts got into the act. In late June, Fitch Ratings lowered RadioShack's debt to junk status and gave it a negative outlook. The gist of the complaints is that RadioShack has slashed advertising, labor costs and benefits so severely that it won't be able to generate a rebound in sales, which have been in steady decline. "Our central belief is that a retailer cannot cut its way to prosperity," wrote David Strasser, an analyst at Bank of America. Strasser shook up RadioShack's stock Friday after he lowered his rating to "sell" and set a 12-month price target of $18 a share. That's a scary number, given that RadioShack was trading at nearly $33 at the time. The stock (ticker: RSH) ended Tuesday's session at $30.20, down 13 percent since July 6. Fitch focused on the sales problems. RadioShack won't release second-quarter results until July 30, but first quarter same-store sales -- an indicator of a retailer's health -- fell 9.2 percent. And wireless sales, which account for a third of RadioShack's business, were down 25 percent. "In spite of weak sales trends, management has implemented cost-cutting initiatives," the Fitch report said. "While RadioShack's cost-cutting efforts have helped stabilize operating profits in the near term, management has not articulated a business strategy to address revenue growth." In North Texas, we've heard a lot about the morale problems at RadioShack, especially since Julian Day took over as chief executive a year ago. Investors have long wondered about Day's retailing plans for RadioShack, because he's considered a finance expert, not a merchant. So far, he hasn't offered new products or a new strategy, and RadioShack stores were locked out of the iPhone frenzy, even though they sell AT&T wireless service. "This speaks very highly to their relevance," Strasser wrote. Best Buy and other electronics retailers didn't get the iPhone, either, but few companies depend on that niche as much as RadioShack. RadioShack has closed almost 500 stores, and it's also cut about 800 employees at its new headquarters on the Trinity River -- roughly 40 percent of the staff that once worked there. It's trying to sublet one of the campus' large buildings because the space isn't being used. But Strasser didn't cite the headquarters group; he's worried about the front-line store workers who help drive higher sales. The analyst wrote that management has slashed commissions and cut benefits, undermining one of the company's historical strengths. When RadioShack offered high commissions, employees were knowledgeable and aggressive about cross-selling, Strasser wrote. Customers who came in for a battery or an electronics part might leave with a cellphone. "After recent changes to the commission structure, we believe that core competency has been seriously weakened," Strasser wrote, citing his checks with RadioShack stores and industry sources. RadioShack also reduced spending on advertising by 18 percent last year and made further cuts in the first quarter. "With sales stagnating, we would argue for the opposite strategy," the analyst wrote. According to Bloomberg, of the 19 analysts following RadioShack, 12 have "hold" ratings, and seven urge investors to sell. Among the nine that have set a target price, the average is $24.16. Two targets are at $18, and one is at $20. But RadioShack has been surprising naysayers for much of the past year. In the first quarter, net income quintupled, and the chief financial officer said the company will continue to emphasize cost controls, profitability and cash flow. The stock climbed, even if the results didn't alleviate all the concerns. "Running the company for cash and margin rather than retailing success does not seem like a viable long-term strategy," wrote Carol Levenson, research director at Gimme Credit. So after the cost cuts, what's next? ------ Mitchell Schnurman, 817-390-7821 schnurman@star-telegram.com