It was a tough Wednesday for RadioShack Corporation (NYSE:RSH) as the retailer reported a surprising $21 million loss in the second quarter. If that wasn’t enough bad news, the company also suspended its dividend for the first time in 25 years and reached an all-time low.
Can you say things happen in threes?
For the second quarter, RadioShack Corporation (NYSE:RSH) posted a $21 million loss ($0.21 cents a share) as compared to a $24.9 million profit ($0.24 cents a share) in the previous year.
Net sales slightly rose 1.2 percent to $953.2 million with mobility platform sales increasing 3.3 percent in U.S. company-operated stores, reported the Associated Press.
In stores open at least a year, revenue was pretty much flat and by suspending its $0.125 quarterly dividend, the company hopes to save $50 million.
Analysts had estimated $0.03 earnings per share on revenues of $970.4 million but revenues only increased one percent to $953.2 million from $941.9 million.
So what happened to RadioShack Corporation (NYSE:RSH) that its wheels came off in the second quarter?
A few things happened. The company rolled some dice that it could make money selling tablets and smartphones and increase its margins by also selling the costly accessories that go with these higher-end electronics. According to AP, this got Radio Shack in trouble as its selling costs rose 16 percent in the second quarter.
In a statement by Radio Shack’s Chief Financial Officer, he said via the Wall Street Journal, “We continue to aggressively manage our cost structure, cutting cost where we can, but not sacrificing in some other areas such as store operations, in particular where it impacts our in-store experience.”
Other problems came from the lack of viability from selling electronics in brick-and-mortar stores as consumers may browse in them, but they’re not likely to make their purchases there. Best Buy Co. Inc. (NYSE:BBY) has faced similar problems. We touched on this in a recent story and on Wednesday analysts went down this path by asking, What’s next for Radio Shack’s growth strategy?
Wedbush Securities analyst Michael Pachter said RadioShack’s poor earnings come from that cost-conscious shopper who won’t pay electronic’s high mark up price. He wrote via the Wall Street Journal, “They and Best Buy have a problem in that their core customer is shopping elsewhere. Best Buy, it’s on the Internet. RadioShack, it’s at Rite-Aid.”
Adding fuel to the fire is that competition from Amazon.com, Inc. (NASDAQ:AMZN), which now serves as another venue to purchase goods that used to be done at retailers.
And let’s be honest, when was the last time you purchased a popular electronic gadget at RadioShack? Last summer I bought a battery charger but ultimately found a comparable and less expensive one at Walgreen’s. Yep, I returned it.
A few solutions to the problems had been commented on by RadioShack President and Chief Executive Jim Gooch. He said on Wednesday, the company is trying to “do a better job telling customers all of the positives they will find when they visit our stores” with the assistance of a new ad agency and additional training for store workers.
Is that really the answer or it possibly selling the company another option? While the company isn’t in as poor condition as Research in Motion Limited (NASDAQ:RIMM) or Nokia Corporation (NYSE:NOK) who could both approach fire sale status, it suffered a two-notch debt rating cut by Fitch Ratings on Wednesday to triple-C; Radio Shack has also lost 80 percent of its value in the last 12 months, reported the Wall Street Journal.
For Best Buy, they’ve been laying off workers and said a plan is in the works this summer for a “more relevant, more intelligent, more nimble” company.
This wasn’t said on Wednesday for Radio Shack but CEO Jim Gooch did concisely say via Bloomberg, “In simple terms, we need to rebuild consumers knowledge of the brand.”
At this point in time, what exactly is the brand these days? Acting as a retailer of high-end tablets doesn’t seem to be working.
On Wednesday, the stock closed down 28.77 percent to $2.58.
