May 2, 2013
RadioShack Corporation.
(RSH-NYSE)
$3.17
Note: This report contains substantially new material. Subsequent reports will have new or revised material
highlighted.
Reason for Report: 1Q13 Earnings Update
Prev. Ed.: Mar 5, 2013; 4Q12 Earnings Update
Brokers’ Recommendations: Positive: 0.0% Neutral: 77.3% (17 analysts); Negative: 22.7% (5 analysts) Prev.
Ed.: 1, 16, 5
Brokers’ Target Price: $2.52(↑ $0.09 from the last edition; 14 analysts) Brokers’ Avg. Expected Return:
(20.50%)
*Note: Dated May 2, 2013.
Note: A Flash Update was done on Apr 23, 2013 on 1Q13 Earnings results.
Portfolio Manager Executive Summary

RadioShack Corp. (RSH) or the company) is the leading U.S. retailer of wireless services. It also
sells parts, batteries, and accessories, consumer electronics, and personal electronics through its
company-owned stores and franchise network. The company also provides consumers access to
third-party services, such as cellular and PCS phone and DTH satellite activation.
Key factors for evaluating an investment in RSH shares are as follows:

RadioShack operates approximately 4,700 company-owned retail stores in the U.S. and Mexico,
under the RadioShack brand name.
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The company-operated stores sell various types of products and accessories including mobile
phones, tablets, digital electronics accessories, power accessories, residential telephones, VoIP
products, home audio and video end-products, direct-to-home (“DTH”) satellite systems, and
computers. Hence, RSH provides a one-stop solution for electronics goods to its customers through
conveniently located stores and online shopping.

The Company has a cash balance of $434.9 million.
Analysts’ Opinions: Out of the 22 analysts in the Digest group covering the stock, 77.3% were neutral
and the remaining 22.7% were negative on the stock. Target prices range from a low of $1.00 to a high of
$4.00, with the average at $2.52. On an average, the analysts expect a negative return of 20.50% from the
stock at the current price.
© Copyright 2013, Zacks Investment Research. All Rights Reserved.
The outlook of the analysts on RSH is dealt with in the following paragraphs:
Neutral or equivalent (77.3%; 17/22 analysts): These analysts remain cautious on the belief that RSH
will continue to face challenges in its core Consumer Electronics (CE) and Mobility segment were the
company sells low-margin smartphones. However, they believe that the increasing popularity of the
company’s no-contact offering could revive the company’s Mobility segment. They do not see any nearterm catalyst for the company’s consumer electronics business, which continues to suffer due to reduced
sales of music players, cameras, laptops and digital TVs and market share loss to online companies. The
analysts suggest that the high-margin signature business and exit from the target kiosk business are
expected to boost profitability for RadioShack. Although the management has taken some new strategic
steps the analysts believe that it will take some time for the efforts to deliver positive results and thus
preferred to remain on the sidelines.
Negative or equivalent (22.7%; 5/22 analysts): These analysts believe that the sale of low-margin
smartphones coupled with an uncompetitive Consumer Electronics business act as headwinds for RSH.
These analysts believe that RSH will continue to struggle throughout the year from deteriorating footfall
within the company operated stores. Furthermore, the recent online shopping boom and stiff competition
from rival Best Buy Co (BBY) are some of the near-term headwinds for RSH, which compelled these
analysts to maintain a negative stance on the stock.
May 2, 2013
Overview
The firms identified the following factors for evaluating the investment merits of RSH:
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Key Positive Arguments
The turnaround initiatives are expected to put
RSH back on track for sustained profitable
growth.
Better alignment of overhead costs will help
RSH generate more profit per square foot.
The cash impact due to store closures is
expected to be positive.
RadioShack has aggressively cut store hours to
minimize store running costs.
RadioShack has reduced corporate head
counts to manage SG&A expenses better.
The recent deal with Verizon will act as a
positive catalyst for growth going forward.
The company provides free support services
via phone, live chat, email and online forum to
its customers.
The company has partnership agreements with
all three big telecom carriers.
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Key Negative Arguments
Migration risks are expected to rise as RSH
moves from T-mobile to Verizon.
The turnaround initiative also carries high costs.
The shift toward high-velocity, low-margin
products will likely lead to margin pressure.
RadioShack’s EPS might be affected due to
margin pressure.
The company’s top-line strategy emphasizes on
driving sales of low-margin products rather than
trying to reignite sales of the high-margin
products.
Cut in labor hours will negatively impact the
company’s sales.
Fierce competition in the wireless phone
business remains a challenge.
Termination of contract with T-Mobile may act as
a negative catalyst for affect growth negatively.
Change in Sprint’s customer and credit model
provides certain headwinds for the company.
RadioShack’s exposure to new wireless products
and services are limited.
Based in Fort Worth, Texas, RadioShack Corporation (RSH) is primarily engaged in the retail sale of
consumer electronic goods and services through its RadioShack store chain. The company’s product lines
include wireless phones and communication devices, such as scanners and two-way radios; residential
telephones, digital versatile disk players, computers, and direct-to-home (DTH) satellite systems; home
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entertainment, wireless, imaging, and computer accessories; general and special purpose batteries; wire,
cable, and connectivity products; and digital cameras, radio-controlled cars and other toys, satellite radios,
memory players, and wellness products. The company also provides consumers access to third-party
services, such as cellular and PCS phone and DTH satellite activation, satellite radio service, prepaid
wireless airtime, and service plans. RadioShack also manufactures various consumer electronics products,
including telephony, antennas, wire, and cable products, as well as other parts and accessories for
consumer electronic products.
The company operated approximately 4,700 stores in the United States and Mexico. They also have 1,500
wireless phone kiosks across the United States and approximately 1,100 dealer outlets worldwide.
More information is available on the company’s website: http://www.radioshackcorporation.com. The
company reports on a calendar year basis.
May 2, 2013
Long-Term Growth
In the long run, the analysts believe that a transitional management and lack of substantial turnaround plan
remain the primary causes of concern for the company. Analysts believe that the company should
restructure its store footprint and shutdown its unprofitable domestic stores, failing which RSH will continue
to make losses in the future.
They expect growth rate in the RSH Mobility division to remain weak owing to the sale of low-margin
smartphones and tablets. The Consumer Electronics segment continues to decline based on weak industry
trends while management projects Signature sales to improve based on higher sales of headphones,
wireless, and tablet accessories. The company has replaced T-mobile with Verizon Wireless as its partner
and has started selling Verizon products through its stores. According to the analysts, this move will foster
incremental sales for RadioShack as Verizon has a much larger customer base than T-Mobile.
RSH continues to operate within a tough competitive environment and this could impact its growth within
the wireless segment. RadioShack has emerged as a retailer of low-margin devices and has lost major
portion of its market share to Best Buy Co., which is a preferred choice for high-end devices. The company
entered into an agreement with Berjaya to open 1000 stores in 10 Southeast Asian countries including
Singapore, Vietnam, Malaysia and Thailand over a period of 10 years. RSH also entered into a joint
venture with Cybermart of China and recently opened a store in Shanghai. The company plans to open
many more stores in China, Taiwan and Hong Kong in addition to opening 400 to 500 stores in Mexico
over the next three to four years. According to the analysts, though international operations are viewed as
a positive for the company, the expansion will not be able to make any meaningful contribution until the
international stores become profitable.
The bearish analysts believe that RSH faces stiff competition from Best Buy in its core CE and wireless
business, which will limit its long-term growth opportunities. They expect RSH’s core CE business as well
as its non-wireless business to remain soft as the company lacks relevant products. Additionally, its biggest
competitor BBY possesses a better relationship with telecom carriers and is all set to expand its store base
in the next five years. RadioShack’s top line will be impacted due to competition from several other service
providers operating their own retail stores. Some analysts believe that the recent online shopping boom will
act as a headwind for the company as customer preferences to buy large CE and mobile handsets online
will hamper RSH’s market share, going forward. Online competitors like Amazon.com Inc. (AMZN) and
other mass merchants have the ability to provide comparable products at better price, which might hurt the
company in the future. As part of its long-term strategy, RSH plans to enhance its Omni-Channel
capabilities, which will help the company link its stores with its online presence. RSH is also focused on
building a new brand image for itself and is planning a new advertising campaign to increase consumer
awareness.
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May 2, 2013
10, 2012
Target Price/Valuation
Provided below is the summary of rating and valuation as per Zacks Research Digest:
Rating Distribution
Positive
0.00%↓
Neutral
77.3%↑
Negative
22.7%
Digest High
$4.00
Digest Low
$1.00
Avg. Target Price
$2.52↓
No. of firms with Target Price/Total
14/22
Risks to the price target include a lack of traction in the company’s turnaround plan; significant loss of
market share due to stiff competition; a potential reduction in top or bottom line due to the highly dependent
nature of RSH’s sales and profits on the Wireless segment; substantial margin deterioration in the
consumer electronics industry; the failure of management to correctly anticipate demographic and
geographic trends; an unexpected consumer response to the company’s new store format; and a lack of
product innovation in the consumer electronics space.
Recent Events
On Apr 23, 2013, RSH announced its 1Q13 financial results. Key highlights are as follows:
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The total revenue in 1Q13 was $849.0 million versus $913.3 million in 1Q12 and also fell shy of the
Zacks Consensus Estimate of $952.0 million.
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Gross margin was 39.7% in 1Q13 compared with 40.5% in 1Q12.
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GAAP EPS in 1Q13 was ($0.35) per share compared with $0.05 in 1Q12. Pro forma EPS of ($0.35)
was nowhere near the Zacks Consensus Estimate of a loss of ($0.11).
On Jan 14, 2013, RSH announced the end of its partnership with Target, effective from Apr 8, 2013.
May 2, 2013
Revenue
As per the company press release, the total revenue was $849.0 million in 1Q13, down 7.0% y/y. Decline
in revenues was attributable to the poor performance of the company-operated stores.
The company primarily reports in two revenue segments: 1) U.S. RadioShack company-operated stores, 2)
Dealers/Others. During 1Q13, the decline in sales was due to poor performances of U.S. RadioShack
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company-operated stores. Within the U.S. RadioShack company-operated stores, decrease in low margin
postpaid and consumer electronics business was partially negated by the growth in the prepaid business.
U.S. RadioShack company−operated stores (90.7% of 1Q13 total revenue) reported revenues of $770.1
million in 1Q13, down 7.6% y/y.
Dealers/Others (9.3% of 1Q13 total revenue) reported revenues of $78.9 million, down 1.0% y/y.
Outlook
RSH has recently announced some of its strategic decisions to revamp its declining business, which
includes remodeling the store base, planning a new advertising campaign, marketing its private brand
products in a better way and increasing its exposure to high-margin wireless accessories products.
Within the Mobility segment, RSH has started selling no-contract, RadioShack branded wireless service
using the existing network of mobile phone company Cricket Communications Inc., which is a subsidiary of
Leap Wireless International Inc. The company plans to rationalize the private brands by reducing the total
number of brands and by reviving the technology and innovation within the brands.
Additionally, RSH has tied up with Sprint’s Boost and America Movil’s (AMX) TracFone to offer prepaid
services, which are currently seeing increase in demand because of its cost advantage. The analysts
expect prepaid services to be a major revenue driver for the company in the years to come as no binding
features will necessarily attract the low-income poor-credit rating households.
Significantly, in Jan 2013, RSH agreed to dissolve its existing business relationship with retail giant Target
Corp (TGT), which might impact its top line in 2013. Although the company’s Verizon business is doing
better than T-Mobile, it is still below RSH’s expectations. Management is focused on enhancing its
relationship with key vendors and expects its postpaid wireless business to grow based on several new
product releases in the 2H13. The analysts on the other hand however remain skeptical about this growth
based on the fact that its carrier partner, Verizon could increase its upgrade cycle from 20 to 24 months.
The company is building a new brand image via social and digital media and wants to be as a crowd puller,
attracting the youth in particular. Going forward, RSH wants to concentrate on its Signature business by
rationalizing its stock keeping unit (SKU) count, improve its marketing efforts and remodeling some of its
select stores in New York. RSH expects its signature sales to expand on the basis of increased tablet and
mobile accessories sales due to an improved range of headphones, wireless and tablet accessories.
Moreover, RSH has renewed its focus on mobile accessories and is investing in the category to derive
sales growth.
RSH’s core consumer electronics business continues to suffer based on its uncompetitive product
offerings. The analysts do not expect any positive catalysts for its core consumer business. However, they
believe that continuous losses in the Mobility segment will compel management to renew its focus on
consumer electronics.
The bearish analysts’ guidance suggests that RSH will continue to struggle throughout the year based on
deteriorating traffic within the company-operated stores. Analysts believe that if RSH manages to increase
prices it could face substantial sales decline due to increased competition from other smartphone retailers.
Morever, a possible merger between Sprint and Japan’s Softbank could revive the latter’s falling postpaid
business. According to management, the recent launch of an online store with eBay Inc. (EBAY) along with
the expected launch of a new mobile application for iPhone and Android will improve RSH’s online reach.
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Margins
As per the company press release, gross profit was $337.3 million in 1Q13, down 8.9% y/y. Gross
margin was 39.7% in 1Q13 versus 40.5% in 1Q12.
Selling, general and administrative (SG&A) expenses were $337.9 million in 1Q13, down 2.1% y/y.
Operating Loss was $18.5 million in 1Q13, as compared to an Operating Income of $7.1 million in 1Q12.
Operating margin was (2.2%) in 1Q13 versus 0.8% in 1Q12.
Net Loss was $34.8 million in 1Q13, as compared to $4.7 million in 1Q12. Net margin was (4.1%) in
1Q13 versus (0.5%) in 1Q12.
Outlook
Management did not provide any margin guidance for 1Q13.
According to most of the analysts, margins will remain under pressure due to higher proliferation of lowmargin smartphones, particularly iPhone, through the three large carriers. Analyst expects RSH’s gross
margin to face challenges as it continues to offer handsets at a subsidized rate in return for a long-term
contract.
Notably, in a major strategic move, RSH agreed to terminate its business relationship with Target Corp and
exited the business on Apr 8, 2013. RSH has an unprofitable business model for its Target kiosks as it sells
low-margin postpaid connections and without high-margin accessories. Most analysts believe that exiting
the Target business will allow RSH to return to profitability and management expects to save around $65
million in working capital expenditure in the 2Q.
The analysts believe that RSH’s margin will be impacted due to increased competition from Best Buy Co.
Inc. (BBY) as it plans to improve its wireless store count by 600–800 in the years to come. Best Buy
intends to increase its price match guarantee scheme, which will provide tough competition to RSH’s price
match guarantee.
RSH continues to manage its cost efficiently to partly compensate weaker sales. Most analysts believe that
elevated promotional expenses, which will focus more on private brands and innovative products, will allow
the company to stabilize gross margins. However, the analysts believe that there is less chance for the
company to further reduce SG&A expenses and could likely rise based on a new round of hiring.
The company is emphasizing on better store experience by initiating a new training process on key
product categories and thus improving the efficiency of store associates. Additionally, RSH has come up
with a new compensation package for its store associates whereby compensation is to be paid on the
margins of the product and this will help RSH to improve its gross margin. Management expects RSH’s
core consumer electronics business to push margin growth despite a challenging business scenario.
Earnings per Share
As per the company press release, GAAP EPS was ($0.35) in 1Q13 versus $0.05 in 1Q12.
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Outlook
Thus, the analysts expect RSH’s weakness in the mobility segment to continue throughout the 1H13 as the
company has no control over smartphone sales or postpaid pricing plans. The analysts believe that if RSH
charges higher prices it could lead to sales decline, which in turn could impact its bottom line. The analysts
also believe that RSH’s decision to suspend its existing venture with Target coupled with cancelation of its
share buyback program will help the company to improve its EPS. Moreover, the company has some debt
maturing in 2H13, which could drive EPS going forward.
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Copy Editor
Content Ed.
Parijat Sen
Nalak Das
Lead Analyst
Nalak Das
QCA
No. of brokers reported/Total
brokers
Reason for Update
Nalak Das
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22/22
Earnings Update
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