RadioShack Shares Got Crushed: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of electronics retailer RadioShack (NYS: RSH) were radioing in an S.O.S. today as they fell as much as 30% in intraday trading after a disappointing announcement from the company.
So what: It wasn't a terrible earnings release, but it was close. The company preannounced fourth-quarter results and investors did not like what they saw. Promotions during the holiday season and softness in its business around Sprint Nextel (NYS: S) phones were cited as key issues as the company told investors that earnings per share for the quarter will likely come in between $0.11 and $0.13. Wall Street analysts were expecting $0.37.
Adding to the disappointment was the additional announcement that the company is turning off the share-repurchase spigot.
Now what: As my fellow Fool Rick Munarriz pointed out, sales were not the big issue -- sales were actually up 6%. However, gross margins slipped from 41% to 35%, reflecting the lower profitability of the stores' sales mix. The question for RadioShack investors to ponder going forward is whether -- as Rick believes -- the lower profitability is here to stay, or whether this is a hiccup and management can fatten the bottom line back up in the quarters ahead.
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