RadioShack said Tuesday that its second-quarter loss widened, as the struggling electronics retailer works to revamp its stores and product assortment ahead of the crucial holiday season.
Although the loss was bigger than analysts expected, revenue beat expectations, and the company said it was bringing on consultants to help improve results.
RadioShack has been cutting costs, shuffling management and updating stores and product selection to battle back against tough competition from online retailers and discount stores that have expanded their electronics offerings. In a call with analysts, CEO Joe Magnacca, who came aboard in February, said he expects the turnaround to continue for the next several quarters. However, he said that a streamlined assortment of products — with more emphasis on categories like digital fitness and accessories like headphones and speakers — should be available in stores by the critical holiday season, during which retailers can make up to 40 percent of all revenue.
Fort Worth, Texas-based RadioShack is also renovating 5 percent of the company’s 4,400 stores, to make them airier and less cluttered, and to install more customer-friendly displays.
“We have a clear plan of action, and our team is completely focused on driving the business forward,” Magnacca said during a call with analysts.
Morningstar analyst Liang Feng said RadioShack’s turnaround plan makes sense, but the company has a small window of time in which to make it work since its capital is limited and the holiday season is only a few months away.
“They’re taking the right steps, but it’s a very steep hill to climb,” he said.
The company is seeking outside help to make sure it is on track, Magnacca said. It enlisted business advisory firm AlixPartners and investment banking firm Peter J. Solomon Co. to turn around results.
Meanwhile, the company said its chief financial officer, Dorvin Lively, left to take a CFO role at fitness chain Planet Fitness. AlixPartners managing director Holly F. Etlin will serve as interim CFO.
Revenue results indicate the turnaround might be gaining traction in its early stages.
Revenue was nearly flat at $844.5 million, handily beating analysts’ expectations of revenue of $816.1 million, according to FactSet. And revenue in stores open at least one year rose 1.3 percent, the first increase in that metric since 2010. Revenue in stores open at least one year is a key retail metric, because it excludes stores that open or close during the year.
But most of the revenue gains were driven by markdowns and promotions such as “spend $30, get $10 back,” in an effort to clear out merchandise and drive traffic into stores. That took a toll on gross margin, or the amount of each dollar in revenue a company actually keeps.
The gross margin decline and investments are hurting profitability. Net loss for the three months ended June 30 totaled $53.1 million, or 53 cents per share. That compares with a net loss of $21 million, or 21 cents per share, last year. The loss is more than double the loss of 24 cents per share that analysts expected.
Magnacca conceded that profitability was “not where we would have liked.” But he said that the quarter was designed to clear out unproductive inventory and test markdowns and discounts to help improve promotions going forward.
“Looking ahead, we expect the turnaround to take several quarters, and during that time, our results may vary from quarter to quarter as we make strategic changes to improve our long-term financial performance,” he said.
RadioShack said it ended the quarter with total liquidity of $818 million. It had total debt of $713 million on June 30.
Shares fell 14 cents, or 4.8 percent, to $2.79 in afternoon trading. The stock has traded between $1.90 and $4.28 over the past 52 weeks.