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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
US RadioShack stores Revenue per Square Foot : Since 2007, US RadioShack stores Revenue per Square Foot has increased consistently at RadioShack's stores located in the US. It increased from $324 to $342 between 2007 and 2010, representing an increase of 5.7%. However, in 2011, this figure witnessed a decline of 3% to $331 and another 3.6% to $319 in 2012. Trefis expects US RadioShack stores Revenue per Square Foot to increase modestly in the forecast years. In case Revenue per Square Foot increases to $365 by the end of the forecast period, there could be an upside of approximately 7% to our price estimate for RadioShack's stock. There could be a downside of approximately 10% to our price estimate for RadioShack's stock if the Revenue per Square Foot grows slowly and reaches $320 by the end of the forecast period.
US RadioShack Stores Gross Profit Margin: Historically, RadioShack has maintained gross margin levels ranging from 45% to 48%. Trefis expects margins to decline at a moderate rate in the coming years. Increased sales of lower margin products and the revamping of the core retail electronics and kiosks transition at Target could affect margins in the short run. In case, gross profit margin increases to 36.5% by the end of the forecast period, there could be an upside of approximately 40% to our estimate for the stock. There could be a 27% downside to our estimate for the stock if gross profit margin declines and reaches 35.4% by the end of the Trefis forecast period.
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 three segments:
U.S. RadioShack company operated stores
RadioShack operates 4,395 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 manufacturing 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. Prior to this, the company had these offerings categorized into seven platforms.
Mobility consists of the wireless segment.
Signature segment consists of accessory, power, service and technical segments.
Consumer electronics consists of personal electronics and modern home segment.
Wireless is a major segment for RadioShack and contributes approximately 48% to its net revenues.
Dealer OutletsRadioShack operates 1,008 RadioShack dealer outlets, including 32 located outside of 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.
Target Mobile CentersRadioShack has completed the roll out of the Target Mobile centers and presently has 1,496 Target stores throughout the U.S.
RadioShack.comOffers products and information through its commercial website www.radioshack.com.
Online customers can purchase, return or exchange various products available through this website.
International OperationsOperates 227 company-operated stores under the RadioShack brand, nine 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.
Wider presence to boost sales
RadioShack operates through 4,476 company-operated stores under the RadioShack brand located throughout the United States, as well as in Puerto Rico and the U.S. Virgin Islands. It has a network of 1,091 RadioShack dealer outlets, including 33 located outside North America.
It also has 227 company-operated stores under the RadioShack brand, 9 dealers, and one distribution center in Mexico and operates 1,496 Target Mobile centers. The firm also caters to customers through its commercial website, www.radioshack.com.
Competition is intensifying
RadioShack faces intense competition as it 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”), in 2012 the consumer electronics industry surpassed $200 billion in overall revenues in the U.S. for the first time. 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 mortal 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.
Trefis Forecast Rationale for US RadioShack Stores Gross Profit Margin
This represents the gross margins associated with the US RadioShack Stores business.
RadioShack maintained its gross margin levels in the range of 45% to 48% till 2010. But in 2011 it dropped to 41% and dropped further to 36.7% in 2012.
In 2012, gross margins decreased by 4.7% to 36.7%.
This decrease was primarily driven by a change in the sales mix within the mobility platform towards lower margin smartphones and tablets. Smartphones generally, and the Apple iPhone in particular, carry lower gross margins given their higher average cost basis.
We expect margin to decline in the coming years, later stabilizing at around 36%.
Trefis considered the following factors for its forecast
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- Revamping of the core retail electronics and kiosks transition
- RadioShack announced that the margins will continue to marginally decline in the near future due to the revamping of the core retail electronics segment and the large-scale deployment of wireless kiosks inside Target stores.
- Increased sales of lower margin products
- Increased sales of lower margin products such as personal electronics products and name brand products, or declines in average selling prices of key products could adversely affect the margins.
- Efficient inventory management
- RadioShack sources inventory both domestically and internationally. Its inventory levels are subject to a number of factors including technology advancements, reduced consumer spending and changes in consumer tastes. Efficient inventory management is very critical for margin improvements.
- Competitive pressures
- RadioShack is facing increasing competitive pressure from other large retail stores, online shopping stores, and some mobile carriers, which directly sell handsets to customers. Increasing competitive threats from several fronts may result in lower wireless sales going forward.
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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