3/17 - "The valuation is certainly cheap, at ten or eleven times earnings. My preferred measure, the free cash flow yield, is a downright juicy 14.3%. With that kind of cash flow yield, RSH could generate double-digit returns even if cash flow declined 4.3% per year...the rally following the latest earnings report has given the shares some fragile support. Given the state of the economy and particularly RadioShack’s wireless exposure, I think the company will eventually stem the bleeding to within my acceptable range, but probably not this year."
"I think the doubt can be addressed by using a put-write strategy to enhance returns and further reduce the potential entry point. As I write this, April $15.00 puts are selling for $0.80 – a 5.3% premium on money that is risked for about six weeks. If the stock declines and the options are exercised, the effective entry ...
2/28 - "Mostly selling accessories, batteries and other gadgets for wireless products, RSH said net income rose to $101 million, or 77 cents a share, from $84.5 million, or 62 cents a share, a year earlier. Net Income was favorably impacted by improved gross margin, a reduction in SG&A, and reduced interest expense when compared to the prior year."Analysts" had expected 72 cents a share.
Revenue fell 6.4% to $1.36 billion, as same-store sales dropped 6.7% on lower wireless and satellite-radio sales."
"The best number was that the chain generated $300.9 million in free cash flow through the twelve months of 2007 versus free cash flow of $189.9 million for the same period in 2006. As we watch what bad management can do to a company at Circuit City (CC)), the results at RadioShack (up 16% Tuesday) show us what good management can do."
3/7 - "We continue to believe that RSH margins will fall starting in 2Q 2008. The 2007 margin expansion story played out, and 4Q was no exception. However, gross margin dollars continue to fall and the company will cycle SG&A cuts after 1Q08...FCF improved in 2007 to $300mn; we don’t think this is sustainable. We expect FCF to fall back to $200mn...Capex fell to $45mn in 2007, the lowest level since at least 1985. We have argued this is not sustainable and management appears to agree. Capex will double in 2008 to $80mn-$100mn."
"Our thesis remains that RSH is a decaying business model where the higher service model in wireless activation is less and less needed...We struggle to see how gross margin $s grow in ‘08 with the sales mix shifting to lower-margin products like GPS and gaming...We reiterate our Underweight rating. Radio Shack is no longer the short of 2Q07. But the slow drip in the share price toward $15 remains realistic."
3/4 - "Our thesis on RSH remains the same. Without top-line growth, margins will decline despite very impressive cost cutting and controls. Further, achieving growth is difficult to do without giving up gross margin. Given recent deterioration in the retail environment and accelerating problems with one of RSH’s most important business partners (Sprint), we do not see top-line issues being resolved this year."
"We are leaving our 2008 EPS forecast unchanged at $1.35, still well below the consensus average at $1.62. We are reducing our 2009 EPS forecast to $1.30 from $1.35 and initiating a 2010 forecast at $1.50...We’re reducing our price target from $18 to $17 based on 5x our 2008E EBITDA. While this is a discount to BBY at 6x, but a premium to companies like CC and RSH’s historical low at 3.5x."
"We are estimating same-store sales declines of 8% for 1Q08 and 5% for the year...At approximately a third of revenues, we believe any strategy that is going to restore top-line growth has to address the wireless business...The current challenges include declining industry new post paid subscriber growth, competition from the carrier’s own stores, competition in prepaid across retail channels, the lack of AT&T’s hottest selling phone (iPhone), particularly soft business at its partner Sprint and, most recently, increasing competition from Best Buy’s new Best Buy Mobile format."
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