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Investment Overview for RadioShack (NYSE:RSH)
Below are key drivers of RadioShack's value that present opportunities for upside or downside to the current Trefis price estimate for RadioShack:
Company Operated Stores
U.S. RadioShack stores Revenue per Square Foot : Historically, US RadioShack Stores Revenue per Square Foot has increased consistently, from $324 in 2007 to $ 342 in 2010. However, US RadioShack Stores Revenue per Square Foot declined in subsequent years on account of lower revenues for U.S. RadioShack company-operated stores. We expects U.S. RadioShack stores Revenue per Square Foot to cross $300 over our review period. In case Revenue per Square Foot reaches $350 by the end of our forecast period, there could be an approximate 15% upside to our price estimate. On the other hand, there will be a similar downside if the Revenue per Square Foot remains at the same level.
U.S. RadioShack Stores Gross Profit Margin: Historically, Historically, US RadioShack Stores Gross Profit Margin fluctuated between 40% - 50%. The figure has been continuously declining since 2011 and stood at 34.4% in 2013. Trefis expects the US RadioShack Stores Gross Profit Margin to increase marginally over our review period. Even a slight variation in future gross margins can have a significant impact on RadioShack's valuation.
For additional details, select a driver above or select a division from the interactive Trefis split for RadioShack at the top of the page.
RadioShack is engaged in the retail sale of consumer electronics goods and services through its RadioShack store chain.
RadioShack operates through the following segments:
(1) U.S. RadioShack company operated stores
RadioShack operates 4,297 stores under the RadioShack brand located throughout the United States, Puerto Rico and the U.S. Virgin Islands. These stores are located in strip centers and major shopping malls as well as individual storefronts.
The firm operates two manufacturing facilities in the United States and one in China. These three facilities manufacture a variety of products which are primarily sold through retail outlets, including telephones, antennas, wire and cable products, and a variety of “hard-to-find” parts and accessories for consumer electronics products.
RadioShack recently created mobility, signature and consumer electronics segments to closely reflect its merchandise and products. Mobility consists of the wireless segment. The signature segment consists of accessory, power, service and technical segments. The consumer electronics segment consists of personal electronics and modern home segment.
Wireless is a major segment for RadioShack and contributes approximately 50% to its net revenues.
(2) Dealer Outlets
RadioShack has a network of 943 RadioShack dealer outlets, including 42 located outside North America. The North American outlets provide name brand and private brand products and services, typically to smaller communities. These independent dealers are often engaged in other retail operations and augment their businesses with RadioShack's products and service offerings.
Online customers can purchase, return or exchange various products available through this www.radioshack.com.
(4) International Operations
As of December 31, 2013, RadioShack operated 274 company-operated stores under the RadioShack brand, 5 dealers, and one distribution center in Mexico.
In December 2008, RadioShack increased its ownership of the joint venture with Grupo Gigante to 100%. Previously, RadioShack operated in Mexico through this joint venture.
Target Mobile Centers
RadioShack terminated its relationship with Target, where it helped operate approximately 1,500 Target Mobile stores, effective April 8, 2013 due to poor performance and mounting losses from the business.
Wider presence to boost sales
RadioShack operates through 4,297 company-operated stores under the RadioShack brand located throughout the United States, as well as in Puerto Rico and the U.S. Virgin Islands. RadioShack has a network of 943 RadioShack dealer outlets, including 42 located outside North America.
274 company-operated stores under the RadioShack brand, 5 dealers, and one distribution center in Mexico. The firm also caters to customers through its commercial website, www.radioshack.com.
Competition is intensifying
RadioShack competes with consumer electronics retail stores as well as big box retailers, large specialty retailers, discount or warehouse retailers, and alternative channels of distribution such as e-commerce, telephone shopping services and mail orders. For instance, players like BestBuy have been making significant inroads in the mobile business and a number of other retailers are also trying to enter this space.
Demand for consumer electronics is bound to go up
The consumer electronics industry, particularly the mobile phone industry has grown significantly over the past several years, driven by product innovations and new services. The growth in mobile phones has been driven by growth in both, the number of wireless subscribers and an increase in smartphones, which represent the latest in mobile phone technology.
According to the Consumer Electronics Association (“CEA”), the consumer electronics industry surpassed $200 billion in overall revenues in the U.S. for the first time in 2012. The industry grew 3.7% in 2012, after reaching an estimated $195.2 billion in revenues in 2011. Smartphones are expected to continue to be the primary revenue driver for the industry. Smartphone unit sales increased 24% in 2012 to 108.8 million units with total revenue exceeding $33 billion.
Juggling with the problem of showrooming
Like other brick and mortar retailers including Target, Wal-Mart and Best Buy, RadioShack is also struggling with the problem of showrooming, wherein customers visit a store to see the product and later buy it cheaper from an online competitor.
This trend has become rampant and has started affecting the sales of retailers with huge physical presence.
Besides, it has become difficult for retailers to compete with online behemoths like Amazon and eBay. Large format stores entail higher maintenance, labor and inventory management costs.
Shift towards lower margin products like smart phones
There has been increasing customer interest towards lower margin products like smart phones, tablets as compared to TVs, notebook computers etc. The industry is witnessing declining sales in TVs and home theaters, mainly due to a decline in average selling prices and changing customer tastes.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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