RadioShack (NYSE: RSH) is a retailer of consumer electronics and services. The company operates and licenses 4,680 stores in the U.S., Puerto Rico, and Mexico. In addition, the company operates approximately 560 wireless kiosks inside Sam's Club locations and in mall locations under the Sprint Nextel name. Primary product categories include consumer electronics, wireless phones, special and general-purpose batteries and accessories. The company estimates roughly 94% of Americans live or work within five miles of a RSH store.
One factor fueling skepticism about the strength of RadioShack is its dependence on a increasingly saturated U.S. wireless market. Historically, over one-third of RadioShack's sales are from wireless activations, however RadioShack's wireless partner, Sprint Nextel (S) is falling in wireless competition, which has seriously hindered RadioShack's sales and profits. In addition, large electronics retailers such as Best Buy (BBY) are increasingly selling accessories--a traditional strength for RadioShack--in conjunction with core, large-ticket items such as flat-panel TVs.
At more than 6,500 locations, RadioShack offers a broad selection of technology products, including innovative mobile devices, accessories, and services, as well as items for personal and home technology and power supply needs. RadioShack's lineup features leading national brands and wireless carriers, as well as exclusive private brands. RadioShack's private label brands include Gigaware for personal computing hardware, PointMobl for accessories that protect, power and enhance the mobility experience, AUVIO for precision audio and video technology, and Enercell for batteries and power products.
First Quarter 2010 Results
RadioShack reported its operating revenues for the 2010 first quarter increased 4.0% to $1.04 billion, compared to $1.00 billion for the 2009 first quarter. Net income for the first quarter increased 16.2% to $50.1 million, or $0.39 per diluted share, compared with net income of $43.1 million, or $0.34 per diluted share, reported for the same period last year. Comparable store sales for company-operated stores and kiosks increased 4.7% during the 2010 first quarter, compared with the 2009 first quarter. First quarter performance reflects improvements in recent sales trends in both the accessory and power product platforms and continued growth in the expanding wireless platform.
RadioShack operates 4,476 U.S. stores. These stores are located in major shopping malls and strip centers, as well as individual storefronts. Each location carries a broad assortment of both name brand and private brand consumer electronics products. RadioShack's wireless platform includes postpaid and prepaid wireless handsets and communication devices such as scanners and GPS products. The company's accessory platform includes home entertainment, wireless, music, computer, video game and GPS accessories; media storage; power adapters; digital imaging products and headphones. The modern home platform includes home audio and video end-products, personal computing products, residential telephones, and Voice over Internet Protocol products. The personal electronics platform includes digital cameras, digital music players, toys, satellite radios, video gaming hardware, camcorders, and general radios. The power platform includes general and special purpose batteries and battery chargers. The technical platform includes wire and cable, connectivity products, components and tools, and hobby products. Radioshack also provides consumers access to third-party services such as wireless telephone activation, prepaid wireless airtime, extended service plans, and AT&T’s ConnecTech service.
At December 31, 2009, RadioShack operated 562 kiosks located throughout the United States. These kiosks are primarily inside Sam’s Club and Target store locations. These locations, which are not RadioShack-branded, primarily offer wireless handsets and their associated accessories. RadioShack also provides consumers access to third-party wireless telephone services.
In April 2009 RadioShack agreed with Sprint Nextel to cease its arrangement to jointly operate the Sprint-branded kiosks in operation at that date. In August 2009, RadioShack transitioned these kiosks to multiple wireless carrier RadioShack-branded locations. They are now managed and reported as extensions of existing RadioShack company-operated stores located in the same shopping malls.
At December 31, 2009, RadioShack had a network of 1,308 RadioShack dealer outlets, including 34 located outside of North America. North American outlets provide name brand and private brand products and services, typically to smaller communities. These independent dealers are often engaged in other retail operations and augment their businesses with RadioShack's products and service offerings.
Products and information are available through RadioShack's commercial Web site. Online customers can purchase, return or exchange various products available through this Web site. Additionally, certain products ordered online may be picked up, exchanged or returned at RadioShack stores.
RadioShack Service Centers
RadioShack maintains a service and support network to service the consumer electronics and personal computer retail industry in the U.S. RadioShack is a vendor-authorized service provider for many top tier manufacturers, such as Hewlett-Packard, LG Electronics, Motorola, Nokia and Sony. In addition, RadioShack performs repairs for third-party extended service plan providers. At December 31, 2009, RadioShack had six RadioShack service centers in the U.S. and one in Puerto Rico.
As of December 31, 2009, there were 204 company-operated stores under the RadioShack brand, 10 dealers, and one distribution center in Mexico.
Since current CEO Julian Day took over in 2006, RadioShack has focused on rapidly cutting costs rather than sales growth. Cost cutting measures have included one-time layoffs, decreasing corporate support staff, lowering legal and consultant fees, cutting advertising costs (i.e., less TV, more radio, and print usage), and reducing sponsorship programs.
Net subscriber additions (“net adds”) are the result of customers signing up for service ("gross adds") minus those disconnecting ("churning"). AT&T's 4Q net adds were strong, but churn was down--churn is good for RSH--and overall, prepay grew to 46% of net adds from 24% a year ago. Pre-pay is estimated to be only 1/5 as profitable as post-pay for RSH. As prepay grows in importance in the U.S. wireless market, RadioShack is likely to lose its margin on its largest segment, and likely more business from independent retailers of service providers.
Sprint/Nextel-the company that RadioShack’s kiosks are run with- has been losing market share to Cingular/ATT and Verizon in a market that is quickly saturating. According to Morgan Stanley, 77% of the U.S. population now has wireless service. Now that only 23% of Americans are without wireless service, and many of these are either children or unable to afford it, growth becomes more of a struggle. Sprint Nextel (S) has been floundering recently in the wireless market and as a result, RadioShack's wireless cum sales have been hurt so far.
Outside its core battery and accessory business, RadioShack faces a great deal of competition. In an attempt to decrease its dependence on its wireless sales, RadioShack's increased push into consumer electronics such as television and iPods brings it into more competition with firms like Best Buy (BBY) and discount retailers such as Wal-Mart Stores (WMT). Additionally, many retailers, Best Buy and RadioShack among them, are and may continue to feel a squeeze on margins and profits in the maturing wireless communications market.
Phone cords, speaker wire, belt clips and headphones for wireless phones has been a long-time selling strength for RSH as bigger competitors tended to focus on the sale of core products (e.g., TVs, sound systems, phones) and spent less time trying to accessorize it. Today, companies such as Best Buy have become better at accessorizing sales of their bigger-box products, requiring fewer trips to RadioShack to complete the package. This leaves fewer opportunities for RadioShack to capitalize on many of the smaller, higher margin sales that their competitors used to miss.