Here's Why RadioShack Dropped, Then Popped


After initially plunging more than 11% Tuesday morning, shares of RadioShack jumped after the company released its fourth-quarter and full-year 2012 earnings.

So why the volatility?

At first glance, things admittedly looked mighty ugly for The Shack.

For the quarter, comparable store sales fell 7% from the year-ago period, outpacing the full year's 3.5% comparable sales decline and helping to drive 2012 net revenue down 6.5% year over year to $1.3 billion. RadioShack's quarterly GAAP net loss came in at an eye-popping $63.3 million, or $0.63 per diluted share, badly missing analyst estimates, which called for a mere $0.03-per-share loss.

For the year, The Shack's net loss came to $139 million, or $1.39 per diluted share, compared to net income of $72 million in 2011.

With those numbers, it's understandable that the stock would drop like a stone. Why in the world, then, did shares of RadioShack rise as much as 4% late Tuesday -- and as much as 6% so far today?

Life, death, and you-know-what
Interestingly, The Shack took a $67 million hit during the quarter to write down deferred tax assets based on GAAP accounting requirements. When we put aside this unusual one-time item, the company miraculously generated a pre-tax income of $3 million.

What's more, its balance sheet still looks relatively healthy; though RadioShack had $778 million in debt at the end of the year, it also boasted $535.7 million in cash and equivalents and can still draw $391 million from its $450 million revolving credit facility should the need arise.

In addition, as expected, RadioShack is finally exiting its money-burning post-paid mobile venture with Target , for which The Shack had agreed to staff around 1,500 of its own employees at various Target locations. For its part, RadioShack was simply happy to cut loose another anchor that was helping to hold it underwater.

Even so, you can't blame Target for giving it the good ol' college try. If the deal had worked as planned, Target and RadioShack would have both found a way to more effectively compete with mobile powerhouses like Best Buy and Wal-Mart with relatively little overhead. Unlike RadioShack, however, it's a safe bet Target hasn't lost any sleep as the venture dissolved and is happy to fall back on its otherwise solid core retail business.

A fixer-upper
When the rubber hit the road, today's volatility was merely the result of our market correctly recognizing that RadioShack's earnings weren't nearly as bad as they first appeared. However, this doesn't mean investors should go mortgage their homes to load up on shares of the struggling electronics retailer. In the end, while it may have bought itself some time, The Shack still has plenty of renovation to complete before I'd be willing to move in.

Many write off any chances for RadioShack's revival, but the brand has been around for more than 80 years and survived numerous technological disruptions during that time. The question is: Can RadioShack survive in today's new retail environment? To help answer that question, we've compiled an in-depth premium report covering all the opportunities, risks, and specifics that every investor should be aware of before deciding whether RadioShack is a buy or a sell. Simply click here now to claim your copy and start reading today.

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Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack. The Motley Fool is short RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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