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Friday, July 07, 2006

Radio Shack Finds A Savior

Stocks: (RHS)(CC)

Radio Shack, the beleaguered electronics retailer, announced that it has hired the fomer CEO of K-Mart to be its new chief. The market immediately drove the stock up 15% from its 52-week low to $15.90. This is still below the 12-month high of $27.24.

Which is as it should be. Radio Shack's problems have been intractable, and that is not likely to change with a new CEO. The stores are old, there are too many of them and the do not sell what customers want.

Gross margins have been dropping and first quarter operating income was $24 million, down 62%, on sales of $1.16 billion, which was up slightly from the previous year. Revenue for 2005 and 2004 rose only 4%.

Radio Shack currently trades at .36 times sales according to Yahoo!Finance. Circuit City is at .38 times, and it has had solid growth recently. So, Wall Street could make the argument that Radio Shack is actually too expensive.

With its core wireless products selling poorly and same store sales moving down, Radio Shack is not a cheap date for investors.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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