Coverage Launch on RadioShack – $18.30 Trefis Price Estimate

RadioShack (NYSE:RSH) sells consumer electronics goods and services through its RadioShack chain of stores and competes with retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and Best Buy (NYSE:BBY). The seven broad categories of products it sells are: wireless, accessory, modern home, personal electronics, power, technical, service and others. Of these, wireless is a major segment for RadioShack and contributes approximately 48% to its net revenues. The key to RadioShack’s growth is whether it can maintain revenue growth by optimizing its product mix based on consumer trends.

Coverage Launch; $18.30 Price Estimate for RadioShack

We recently launched coverage on RadioShack with a $18.30 price estimate for the company’s stock. RadioShack’s company operated stores are located in strip centers and major shopping malls as well as individual storefronts, and it operates manufacturing facilities in the United States and China.

We break down our analysis of RadioShack into the three main business segments below:

1. US RadioShack Stores

2. Others

3. Kiosks

Consumer Electronics Industry at a Glance

Driven by product innovations and new services, the consumer electronics industry has experienced impressive growth rates over the past several years. In particular, the mobile phone industry has driven much of this growth due to the rising demand for smartphones and increase use of mobile devices.

According to the Consumer Electronics Association (CEA), sales of consumer electronics should remain strong growing by more than 3% in 2011 to $186 billion due to the continued adoption of more portable digital products. In 2011, the CEA estimates that smartphone revenues will increase nearly 20% to more than $21 billion.

RadioShack’s ability to tap this demand will help it grow its revenues per square foot in its stores while growing its online and kiosk sales channels.

U.S. Sales Presence

RadioShack depends primarily on its 4,486 company-operated stores under the RadioShack brand in the U.S, Puerto Rico and the U.S. Virgin Islands. It also operates 1,267 kiosks located throughout the U.S. located inside Target and Sam’s Club stores.

The company has a network of over 1,200 dealer outlets, including 34 located outside of North America. Internationally, it has 211 company-operated stores under the RadioShack brand, nine dealers, and one distribution center in Mexico. It also caters to customers through its commercial website www.radioshack.com.

Drivers to U.S. Stores Division

If you look at the key forecasts to our U.S. Stores driver: 1) revenue per square foot, 2) number of stores, 3) average square footage, and 4) gross profit margin, we forecast the last 3 forecasts to remain more or less stable through our forecast period indicating that the key driver for the company is increasing revenue per square foot.

RadioShack expects total net sales and operating revenues to increase in the low to mid single digit percent range in 2011, primarily driven by continued growth in the wireless product platform, and its ability to execute will determine the ability to driver this division which is near 85% of the company’s stock value by our analysis.

See our complete analysis for RadioShack