RadioShack has a larger interest expense as a percentage of sales. However, RadioShack had $432 million in cash as of the June-ended quarter, compared to $23.1 million for hhgregg, Inc. (NYSE:HGG) and $908 million for Best Buy Co., Inc. (NYSE:BBY) (as of May 4). It seems like RadioShack can survive short-term stress and it will be able to profit from its leverage if the turnaround is successful.
Initiatives
RadioShack has recently undertaken the following major initiatives:
Reposition the brand – introduced a new brand strategy called Let’s Play (see video), ended its partnership with Target, closed about 1,500 kiosks selling mobile products at Target, started its products in college bookstores.
Revamp product assortment – reduced in store SKUs by 25% to about 3,000 and started paying a commission to employees who sell all products — not just mobile, focused on innovative products such as software based (electronic health for example) and audio products.
Reinvigorate stores – opened a new concept stores in Manhattan with plans for about ten concept stores by year-end that will feature brand specific sections (Apple and Samsung for example) and more fun and interactive options for customers.
Operational efficiency – hired a new CEO (Joe Magnacca who helped turn around Reed and sell it to Walgreen’s) and AlixPartners (a turnaround firm) and started using its stores as mini fulfillment centers.
Financial flexibility – hired Peter J. Solomon in an effort to strengthen its balance sheet.
Due to the above initiatives, RadioShack’s sales and margins are likely to get worse before they start improving in 2014. For example, the company incurred $7.9 million of losses during the first six months of 2013 related to closing its Target kiosks. Also, due to the reduction of its inventory and related discounts, its sales and margin levels are under pressure. Finally, hiring a turnaround consultant and appointing a temporary CFO who works for the consultant and not RadioShack could be risky.
Similar to RadioShack, hhgregg and Best Buy are taking new initiatives to compete better with online retailers and to gain more consumers who are increasingly price sensitive. For example, hhgregg is refining its fitness equipment offerings and increasing the number of its appliance and furniture products. Fitness equipment, major appliances and furniture are some of the few items that consumers still buy predominantly in brick and mortar stores. And Best Buy is introducing mini-concept stores of brands such as Apple, Samsung and Microsoft. It seems like RadioShack initiatives are more pronounced and diverse and should carry larger benefits if successful.
Conclusion
RadioShack is currently undergoing a major reorganization, but the company has more liquidity than competitors hhgregg and Best Buy. Investors looking to invest in a unique consumer-electronics retailer with a large footprint in the U.S. should consider RadioShack.
Traditional retailers are increasingly pressured from online e-commerce websites and it seems like RadioShack is actively trying to adapt to this new reality. It is unlikely that RadioShack will go out of business, as mentioned in this recent Reuters report. The upside in RadioShack’s stock price, if this turnaround is successful, seems to outweigh the risks.
The article RadioShack Will Survive originally appeared on Fool.com and is written by Delian Naydenov.
Delian Naydenov has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack.
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