RadioShack Stock Tumbles on Warning
RadioShack Corp. on Friday warned poor margins on mobile phones, satellite television and computers will cause first-quarter earnings to fall below a year ago and miss forecasts, triggering a 26% slide in the consumer electronics retailer’s stock.
Shares of Fort Worth-based RadioShack, which also lowered its guidance for the full year, plunged $10.20 to close at $28.30 on the New York Stock Exchange. The stock hit a 52-week low of $27.50 earlier in the session, down 62% from its year high of $72.94 in October.
RadioShack, which operates more than 7,100 stores in the United States, said it expects to earn between 31 cents and 33 cents a share in its first quarter, down from 34 cents a year earlier.
Analysts have been expecting earnings of 35 cents to 39 cents a share, with a consensus forecast of 38 cents, according to research firm First Call/Thomson Financial.
“The key driver of the new earnings forecast is a reduction in gross margin during the first quarter,” RadioShack President and Chief Executive Dave Edmondson told analysts.
Aggressive markdowns on personal computers, falling mobile phone margins and increasing sales of lower-margin prepaid wireless services hurt first-quarter profit, the company said.
Lower commissions on the sale of DirecTV satellite television services also pressured results. RadioShack receives payments from DirecTV, a unit of Hughes Electronics Corp. , when systems are activated, but there has been a growing incidence of systems that are purchased but not activated, the retailer said.
“It’s not beautiful news,” said UBS Warburg retail analyst Aram Rubinson. “It’s probably not wholly unexpected, but it will still be a bit of a shock to some.”
The earnings news also spurred a flurry of investment downgrades from Wall Street. Deutsche Banc Alex. Brown lowered its rating to “market perform” from “buy,” while Jefferies & Co. lowered its rating to “hold” from “buy.” Dain Rauscher Wessels dropped its rating to “buy” from “strong buy.”
RadioShack’s lower guidance contrasts sharply with that of rival Best Buy Inc., which earlier this week reported strong fourth-quarter results and said those for the year should exceed forecasts despite the soft economy. However, Best Buy said it sees first-quarter earnings below those of a year ago.
RadioShack said it expects full-year earnings of $1.97 to $2.02 a share, up 7% to 10% from the $1.84 reported a year earlier, but down from its February forecast for earnings growth of 15% to 20%.
Analysts have been looking for earnings to increase 10.9% to 19% to between $2.04 and $2.19 a share in 2001, according to First Call. The consensus expectation has been $2.11, up 14.7% from a year ago.
