Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
A New Day at RadioShack by Lawrence C. Strauss
Summary: Last month, consumer electronics retailer RadioShack (NYSE:RSH) CEO Julian C. Day told analysts, "It is all about having the right product in the right stores at the right price." It seems following his own advice has been wise; fourth quarter earnings were up more than 60% from the previous year, and shares were recently at $26.94, up 61%. In his 8 months on the job, Day has applied aggressive cost-cutting and financial controls to turn the company around. Last year over 500 stores were closed, 514 jobs were eliminated, ad spending was slashed and inventory was tightly reduced. The resulting cash balance, $472 million at the end of 2006, provides a safety cushion in case the economy slows and the ability to invest as needed. Bulls contend that there is plenty more to cut. Bears are weary of competition, as high profit cell phone sales are already in decline at RadioShack, with carriers such as AT&T (NYSE:T) opening their own stores. They believe the stock is vulnerable at its current 23.2x the 2008 estimate. Management is staying on the ball by ensuring the right mix of gadgetry on the shelves, from iPods to flat-screen TVs, and retains a clear advantage in number of stores, with about 4,470 compared, for example, with Circuit City's (NYSE:CC) 659. RSH shares are already up over 60% this year. But Barron's says they "could rise 30% or more in the next 12-18 months if new chief Julian Day hammers costs further and gets the product mix right."