Majestic Research

The Wall Street Journal

RadioShack, Now the Adapter

By Miguel Bustillo
Published: April 26, 2010

RadioShack Corp. has been remaking itself as a seller of smartphones, trying to shake off its uncool image as the place to find connectors, electronic cables and batteries.

Offering handsets and service plans from multiple carriers under the same roof, RadioShack adopted a menu approach that’s popular in Europe. The company also is making use of its best asset: small stores—thousands of them—at seemingly every mall in America.

The recent shift in merchandising, spearheaded by Chief Executive Julian Day, appears to be the best momentum gainer the company has found in years: RadioShack on Monday reported a 16% jump in profit for the quarter ended March 31, thanks to a 49% rise in its wireless business. Its stock has more than tripled since hitting a 16-year low in March 2009.

“Our performance this quarter highlights the success of our strategy to increase our focus on mobility, connectivity, and innovative products and services, while continuing our progress in brand building,” Mr. Day said.

That said, the strategy pits RadioShack against some tough rivals, namely Best Buy Co. and Wal-Mart Stores Inc., the nation’s two largest electronics retailers, which are expanding into the fast-growing mobile phone business with their own menu-style offerings.

RadioShack is “around the corner from everyone, and that is the thing that has really changed the game for them now that they have realized the strength in wireless,” said John Tomlinson, an analyst with Majestic Research. But, he added, “I’d be worried about RadioShack long term if Best Buy Mobile accelerated its growth."

RadioShack’s 6,500 locations world-wide include 4,680 company-run stores and 550 kiosks in the U.S.

RadioShack—which has been inching toward a name change by calling itself “The Shack” in ads—has launched numerous marketing campaigns to rejuvenate its brand over the years, including employing basketball star Shaquille O’Neill as a pitchman earlier this decade. But the company’s dated image as a seller of cables and adapters persisted: A parody article by The Onion in 2007 was headlined, “Even CEO Can’t Figure Out How RadioShack Still In Business.”

Whether RadioShack is really pursuing a new long-term plan or dressing itself up for a possible sale is becoming a subject of intrigue on Wall Street.

RadioShack refuses to discuss whether the company is courting a buyer, or much else. But sale speculation, which has circulated around the company for the better part of a decade, has reached a boil again.

Some retail analysts believe RadioShack may indeed be positioning itself to be sold, noting that it’s been stockpiling cash and didn’t buy back its stock in the first quarter despite a $290 million allocation to do so.

Analysts as well as some rival retail executives dismiss speculation about one potential buyer: Best Buy. They say Best Buy is already expanding its own chain of small phone stores, Best Buy Mobile, and has little need for RadioShack’s locations because it can secure real estate cheaply due to all the vacancies created by the economic downturn.

The more likely suitors could be private-equity funds, though analysts note that with RadioShack stock trading around $23—giving it a market cap of about $2.9 billion—the price gets harder to swallow.

Credit Suisse analyst Gary Balter wrote last week that after recently hosting Best Buy Chief Executive Brian Dunn and other managers, he expects “fewer acquisition or earnings surprises” from the company in 2010. Best Buy refused to comment on what it calls rumors and speculation.

RadioShack, based in Fort Worth, Texas, was hamstrung in U.S. markets after it ended its deal with Verizon Communications Inc., the nation’s largest carrier, five years ago. But it has developed business relationships with three top U.S. carriers: AT&T Inc., SprintNextel Corp. and Deutsche Telekom AG’s T-Mobile, which it began selling last year. It also recently began carrying Verizon phones again at company-run kiosks inside more than 400 Wal-Mart Sam’s Club stores. Apple Inc., known for being selective, started selling its iPhone through RadioShack last November in what some analysts saw as a sign that the company was gaining respect as a player in phone retailing.

That new reputation helped draw in James Bird, a 27-year-old manager at Chicago Internet marketing firm Marshall Firth, who stopped at RadioShack to buy a mobile phone accessory last week while on vacation in California’s Napa Valley.

“Half the store is pretty much phones now, and the staff is pretty knowledgeable. It’s not just weird plugs and stuff anymore,” Mr. Bird said.

But Mr. Bird still also saw evidence that RadioShack had a ways to go: two shelves stocked with VHS videotape rewinding devices, which Mr. Bird promptly photographed and posted on Twitter to amuse his friends.