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Strategies & Market Trends : Turnarund Investing -- Ignore unavailable to you. Want to Upgrade?

To: grahamcracker who wrote (844)

4/30/2012 5:04:54 PM

From: Covenant

Read Replies (1) | Respond to of 1876

This isn't priced for going bust at all. RSH is moderately cheap on a price to book basis, but the book does not contain many assets that go up in value. Leasehold improvements and inventory are not quality assets. Whatever upside there is in real estate will be offset by downside in real estate. None of the other metrics looks cheap at all.

Shareholder Equity

Shares Outstanding	99.4 M
Institutional Ownership	89.91%
Number of Floating Shares	98.6 M
Short Interest as % of Float	36.44%

Financial Strength (MRQ)

Quick Ratio	1.81x
Current Ratio	3.22x
Debt/Equity	0.91x
Debt/Assets	0.33x

RSH's debt to equity ratio indicates that it has been as aggressive with using debt to finance growth as compared to its peers in the Retail (Technology) industry. The resultant effect on earnings would be as volatile as related companies.

Valuation (MRQ)

Price/Earnings (TTM)	20.15x
Price/Sales (TTM)	0.12x
Price/Book	0.72x
Price/Cash Flow	10.30x

RSH's P/E Ratio is greater than 100% of other companies in the Retail (Technology) industry. This typically means that investors are willing to pay more for its level of earnings relative to future growth.

Profitability (TTM)

Gross Margin	40.08%
Operating Margin	2.10%
EBITDA Margin	4.01%
Net Profit Margin	0.63%

RSH's Gross Margin is more than 93% of other companies in the Retail (Technology) industry, which means it has more cash to spend on business operations as compared to its peers. As indicated by the Operating Margin, RSH controls its costs and expenses better than 62% of its peers.

Management Effectiveness (TTM)

Return on Assets	1.45%
Return on Equity	3.42%
Return on Inves. Capital	1.97%

The Return on Equity for RSH shows that it is able to reinvest its earnings as efficiently as its competitors in the Retail (Technology) industry. Typically, companies that have higher return on equity values are more attractive to investors.

Growth Rate (TTM)

Earnings Per Share	-82.3
Sales	1.8
Dividend (MRQ)	100.0

RSH's EPS Growth Rate is less than 61% of its peers in the Retail (Technology) industry.

Dividend (TTM)

Dividend Yield	9.33%
Payout Ratio	268.95%
Annual Dividend	0.63

RSH's dividend yield is greater than 75% of other companies in the Retail (Technology) industry. As indicated by the payout ratio, RSH's earnings support the dividend payouts more than others in the group.

Operating Ratios (TTM)

Asset Turnover	2.28%
Inventory Turnover	3.57%
Receivables Turnover	17.98%
Effective Tax Rate	38.31%

These ratios give an indicator of efficiency (ability to move inventory and generate sales) within a company, particularly ones with tangible goods (i.e. automotive, computer hardware) as compared to its peers.

Company Officers

Chief Executive Officer	James F. Gooch
Chief Financial Officer	Dorvin D. Lively
Chief Information Officer	Sharon S. Stufflebeme
President	James F. Gooch

Company Contact

Employees	34,000
Headquarters	300 RadioShack Circle, Mail Stop CF3-201 FORT WORTH, TX 76102-1964
Phone	817-415-3011
Fax	817-415-2647
Web Address radioshack.com

Focus On Mobility Stressing Margin Structure
¦
Although the Street was anticipating weaker Q1 results, the magnitude of the
sequential slowing in U.S. company-operated sales, along with a gloomy
outlook for gross margins in the near term, appears to have caught investors
by surprise. We remain concerned that the company’s effort to fuel growth in
the lower margin mobility category will result in earnings downside beyond
Q1. As such, we are reducing our 2012 EPS estimate to $0.38. We are
lowering our target price to $5, reflecting 10x our revised 2013 EPS estimate.
¦
With RadioShack focused on mobility, we expect top line results in the
category to pick up from Q1, driven by the carrier-wide iPhone rollout,
incremental digital and TV marketing dollars dedicated to the category,
further traction with Verizon, and easier comparisons. However, the mix shift
toward mobile signals sustained gross margin compression, in our view,
exacerbated by the growing sales penetration of lower margin smartphones.
¦
Target kiosks are another challenge for RadioShack, as the agreement in its
current form precludes the company from capturing the higher margin
attachment sales, adding to the pressure on margins. For now, the solution
is driving greater in-store conversion, but the concept is a work in progress.
¦
Meanwhile, the company remains focused on rationalizing SG&A, but the
runway for further cost cuts among the largest expense buckets seems to be
shrinking. In-store customer service levels feel sparse, meaning that payroll
already is running lean. In addition, limited store closures and a renewed
focus on advertising make meaningful rent and marketing reductions unlikely.
¦
RadioShack has several near-term opportunities, including improving service
standards along with revamping relevancy and presentation in the higher
margin signature category. Encouragingly, the sales cadence accelerated
through Q1, and April showed continued improvement to kick off Q2.

Weaker Margin Trends to Continue into 2012
¦
RSH’s weak Q4 results were consistent with its pre-announcement but point
to another challenging year ahead in 2012. While RSH discussed Q1 as the
trough, we are concerned problems may continue past Q1. Our belowconsensus
estimate of $0.69 for 2012 remains unchanged and reflects that.
¦
RSH has started to show some top line improvements, but its problem is that
it is not driving enough volume to offset the lower margins on those sales or
enough volume to get leverage on its fixed cost structure. As the company
continues to transition both its wireless and non-wireless business, these
issues may continue for much of 2012.
¦
Q4 margins were down 600 basis points vs. last year, and more than half of
that was driven by a mix shift within mobile to lower margin phones, tablets
and e-readers. Much of the rest was the result of a company sales mix shift
to the mobile category. We expect these issues to get worse before better in
2012, with a new Apple iPhone expected and as other major product
categories in RSH stores continue to decline.
¦
Our other concern is the promotional activity in the mobile. Price promotions
negatively impacted gross margins by about 50-100 bps in Q4, as RSH got
more aggressive to drive awareness of its offering, as well as in response to
third party retail competitors’ actions (such as BBY and WMT). While
promotional activity to date seems to have normalized, we are concerned
that it may pick up again towards the holiday, as retailers remain very
focused on this category.
¦
Some opportunities for 2012: RSH laps some of the initial Sprint issues in Q2
when a change to the early upgrade policy negatively impacted sales. RSH
also appears to be gaining some traction with VZ and AT&T which may help
offset these weaker trends. In Q3, RSH laps the full Target mobile rollout.
While we see limited gross margin upside to Target unless the company can
start capturing accessory sales, there could be an opportunity for significant
operating leverage as units mature and volume ramps.