Some of you may not know about Archie Norman especially if you are not from the UK. In my opinion, he is one of the top 20 rock star CEOs of the last 50 years. He took over as CEO of ASDA in 1991 when it was on the verge of bankruptcy, managed to turn it around against all odds and then sold the chain to Wal-Mart (WMT) for $11 Billion in 1999!
It is perhaps a bit premature to compare a newly minted CEO like Joe to a tried and tested veteran like Archie.
But now compare this!
1) Before joining ASDA as CEO in 1991, Archie Norman had never been a CEO before.
Before joining RadioShack (RSH) as CEO in 2013, Joe Magnacca had never been a CEO before.
2) Before joining ASDA, Archie had overseen the successful turnaround of KingFisher (then Woolworth Holdings) and had already made a name for himself as a future high potential would-be CEO.
Before joining RadioShack, Joe oversaw the successful turnaround and sale to Walgreens of the Duane Reade drugstore chain and had already made a name for himself as a future high potential would-be CEO.
3) One of the early senior managers to be fired by Archie was the CFO who was part of the reason ASDA's finances were in such a mess.
One of the early senior managers to be fired by Joe was Dorvin Lively who was the interim CEO and had been the CFO since 2011 (and no - I do not think Dorvin willingly walked away from the job and a $1.5Million retention bonus)
4) Archie lost no time in cutting unnecessary Selling, General and Administrative (SG&A) expenses - read "bloated payroll" - at the corporate office.
Joe is taking steps to cut SG&A expenses and reduce inefficiencies at the corporate office.
5) In the midst of all the cost cutting, Archie decided to experiment with new store formats and new concept stores which were wildly successful. These stores bypassed the usual bureaucratic reporting chain in ASDA and reported directly to the top management.
In the midst of all the cost cutting, Joe has introduced a new concept store in New York and is proceeding with his planned country wide roll out of about 220 such stores. Early indications are very promising.
6) Archie realized that he could not do all the work alone and he also needed outside experts who were not part of the problem to take a fresh look and suggest good workable solutions. To this end, he brought in a consulting firm and some of the consultants stayed on to take important roles in the transformation.
Joe realized that he could not do all the work alone and he also needed outside experts who were not part of the problem to take a fresh look and suggest good workable solutions. To this end, he brought in turnaround firm AlixPartners and hired its managing director Holly Etlin as RadioShack's interim CFO.
7) Archie managed to rally the employees around a clear simple message and got them excited about working for ASDA again.
Joe is trying to rally the employees around a clear simple message and to get them excited about working for Radio Shack again.
I found the similarities between the stories of these two men fascinating to say the least. And the best part is that Joe does not have to be even half as good as Archie was. RadioShack is trading at a fraction of its tangible book value and is in no immediate danger of running out of cash. For the naysayers who say that a big chunk of the book value is worthless inventory, I will simply point out that using discounting and promotions, Joe not only managed to increase same store sales for the first time in 3 years, he actually managed to turn supposedly "worthless" inventory into cold hard cash.
All it takes is a change of "sentiment" and this stock could easily double in value from the current "bankruptcy" price of $2.51 per share. If you do not believe what "sentiment", or "market psychology" can do to a share price, then take a look at Tuesday Morning's (TUES) numbers. Incidentally, I randomly picked TUES as one of many excellent candidates to prove my point. I could just as easily have picked one of the other retail turnaround stories such as Pier 1 Imports.
Here are the numbers for TUES taken straight from the SEC website:
TUESDAY MORNING CORP
12 months ended June 30, 2010
12 months ended June 30, 2011
12 months ended June 30, 2012
Nine months ended March 31, 2013
Sales (in '000s)
SG&A (in '000s)
Operating Income (in '000s)
In other words, I do not see any discernible or significant improvement in Tuesday Morning's sales and operating income or any significant decrease in SG&A expenses. SG&A expenses have actually increased steadily over the last four years. And operating income has been falling steadily and fell off a cliff from a positive number to a negative number in the nine months ended March 31, 2013! However, the share price has actually tripled since January 2012!! Why did this happen? One reason is that the market was pricing the company for bankruptcy and when it seemed that TUES would not go bankrupt, the share price skyrocketed.
Could this happen to Radio Shack? Most certainly. Will it happen? Nobody knows. However, with ample liquidity, a stock priced for bankruptcy and a rock solid CEO leading the way, the odds are in favor of such an event.
In summary, it is too soon to write the obituary for this retailer as many in the popular press have done. This is a 92 year old company that has survived many economic cycles. RadioShack was opened in 1921 by the Deutchmann family, offering ham radio operators and electronics buffs a retail and mail order source for their electronics needs. By the 1960s, the company had nine stores and was shipping electronics to people all over the world, but was falling on hard times.
Charles Tandy purchased the company in 1963 and turned its $4 million debt into a $20 million profit. Today the company operates stores nationwide, selling everything from batteries to satellite dishes to electronics buffs and general consumers.
Fast forward to August 2013 and the company is once again on the ropes.
Now it is Joe Magnacca's turn to write a new chapter in the Radio Shack story. I am betting that it will be one of success and one of survival.
Perhaps as a much stronger stand-alone company.
Perhaps as a stronger revived entity that is acquired by a bigger rival.
Only time will tell.