Why RadioShack Will Never Be Great Again

There was a time when RadioShack (RSH) mattered.

If your dog chewed through your coaxial cable or your lithium oxide battery-powered watch stopped ticking, it was a short and easy drive to your neighborhood strip mall, where RadioShack was waiting.

Sure, it was creepy that they asked for your phone number -- but how else would you make sure that you got the nifty weekly sale mailings?

Then other retailers began stocking more of the RadioShack essentials. The Internet also leveled the playing field, offering cheaper routes if you were willing to wait a couple of days for blank CDs or a remote-controlled toy car.

Now RadioShack isn't creepy. It's just dead.

When a Retailer Needs Fresh Batteries

The emphasis at RadioShack these days is clear: wireless. It's a one-stop shop for the latest smartphones and your choice of the country's three largest carriers. It's a model so simple that even Best Buy (BBY) -- which itself will never be great again -- is breaking from its cavernous superstore model to open smaller Best Buy Mobile stores that will attack the Shack head on.

Imitation is the sincerest form of flattery, but there's no reason for RadioShack to be blushing. It's a financial mess.

Folks just aren't shopping at RadioShack the way they used to. Store-level comps are off by more than 4% through the first nine months of the year, after a similar decline at its stores and wireless kiosks for all of 2010.

Anatomy of a Power Outage

The public doesn't remember the glory days of Tandy computers and blank cassette tapes. All they see now is a barren store in a suburban shopping center wedged between a Subway sandwich shop and a bustling drugstore that stocks many of things that folks used to buy at RadioShack.

The worst thing about RadioShack is that even analysts don't realize how quickly the retailer is fading.

Let's take a peek at the past year of earnings. I'll give you what Wall Street was expecting and what RadioShack actually earned. See if you can spot the problematic trend before I spill the beans at the other end of this table.

It's bad enough when a company comes up short on the bottom line for several periods in a row, but notice how every passing quarter finds seasoned analysts underestimating RadioShack's reality by larger and larger gaps.

The pros don't get it.

A year ago analysts figured that RadioShack would earn $2.15 a share this year and $2.37 a share come 2012. Now those same firms see the retailer earning $1.19 a share this year and $1.40 a share next year. Anyone that sees that and believes that RadioShack will actually grow its earnings next year needs to revisit the table I laid out a couple of paragraphs earlier.

We're Fresh Out of Growth, But We Just Got a New Shipment of Denial

RadioShack is looking for a new ad agency. It somehow thinks that Madison Avenue can save the day, but even Don Draper couldn't rescue the small-box retailer now. It's not the message, it's the medium.

Sponsored Links

RadioShack's comps have consistently plunged on this side of Circuit City's liquidation. The shuttering of the consumer electronics giant should have sent even more people scrambling to RadioShack for new laptops or cell phone chargers. It didn't.

The retailer can point to its success in opening mobile centers inside Target (TGT) stores, but if this is a growing business, the cheap-chic discounter will just do what Sam's Club did back in January and tell RadioShack to take a hike.

Despite the financial tsunami, RadioShack decided to use some of the cash on its balance sheet and its dwindling cash flow to double its dividend and announce a large share buyback two months ago. These are smart moves if a company's fundamentals are on the mend, but tricking income investors into a situation where earnings are going the other way is not cool.

It's also not sustainable.

I'm No Ebenezer

I hope I'm wrong. I would love nothing better than to be told a year from now that RadioShack is on track to earn more than $1.40 a share in 2012. I don't have a problem with hearing that consumers have tired of online shopping or buying smartphones directly from the carriers -- or in Apple's (AAPL) case, the manufacturer itself.

However, as someone who was a frequent RadioShack shopper back in its heyday, I'm having a hard time remembering the last time I made a purchase there.

I'm not alone, and the numbers and worrisome trends bear that out.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of RadioShack, Apple, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and writing covered calls in Best Buy.

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