RadioShack Corporation (RSH)’s Uphill Battle

RadioShack Corporation (NYSE:RSH) has seen revenue declines over the past two years, swung to a loss in 2012, and consistently delivers negative net income. And if that’s not enough, margins have been declining and the dividend has been suspended because it was needed for debt reduction.

Industry changes

If you’re going to purchase an electronics product, then you’re probably going to visit Amazon.com, Inc. (NASDAQ:AMZN). If you’re not an online shopper, then there’s a decent chance you will opt for Best Buy Co., Inc. (NYSE:BBY). And if you’re a serious value shopper, then you might remain loyal to Wal-Mart Stores, Inc. (NYSE:WMT). Wal-Mart might also be an appealing option because you can shop for other non-technology items while there.

One place that might not immediately come to mind is RadioShack Corporation (NYSE:RSH), which is a shell of what it used to be. At one point in 1999, Radio Shack had a market cap of $15.8 billion. Currently, it has a market cap less than $300 million.

In the past, Radio Shack presented a fun and exciting shopping experience. You might have looked forward to buying a remote control car, a coaxial cable, or other gadgets. Today, if you tell someone you’re going to RadioShack Corporation (NYSE:RSH), they might shoot you a puzzled look, or even ask, “Why?”

This is because that remote control car is going to be more affordable at Wal-Mart Stores, Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), or Costco Wholesale Corporation (NASDAQ:COST). And if you’re looking to browse, you can do so without leaving home by visiting Amazon.com, Inc. (NASDAQ:AMZN). And if you need to go to a brick and mortar location, then you will find a wider selection at Best Buy Co., Inc. (NYSE:BBY). Additionally, RadioShack Corporation (NYSE:RSH)’s staff isn’t overly helpful.

Rescue operation

RadioShack Corporation (NYSE:RSH) hired CEO Joseph Magnacca in February. Some investors felt there was a chance for a turnaround, mostly based on Magnacca’s impressive performance at Walgreen Company (NYSE:WAG).

Magnacca is in the process of changing everything from RadioShack Corporation (NYSE:RSH)’s colors to its product assortment. According to the company’s website, RadioShack is focused on selling innovative products, operating systems, accessories, applications, and service plans for data, text, and voice.

Radio Shack also offers a Trade & Save Program, which allows consumers to trade-in working electronics toward a new purchase. This makes upgrading easier in a financial sense and it has the potential to drive more traffic to RadioShack stores.

Same-store-sales improved last quarter 1.3% year-over-year for stores and kiosks opened at least one year. This was the first time in three years that comps increased, which is a positive sign. However, profits are still non-existent and will be tougher to get.

Though Best Buy Co., Inc. (NYSE:BBY) isn’t setting the world on fire, it plans to open 600-800 mobile stores over the next five years. This is bad news for RadioShack, especially since Best Buy is targeting mall locations.

Best Buy Co., Inc. (NYSE:BBY) has also demonstrated better debt management, sporting a debt-to-equity ratio of 0.48, versus Radio Shack’s debt-to-equity ratio of 1.41. This, combined with a stronger brand, gives Best Buy more potential for a turnaround.