HPC Market Watch

RadioShack to Start Next Week’s Earnings With a Thud
RadioShack has had problems meeting analyst expectations, with three beats, three misses and two meets in the last two years. That track record hardly inspires confidence.

Amid the flood of earnings reports next week sits a well-known retail name, though it’s one that is struggling to find its groove.  The company is RadioShack (NYSE:RSH), which reports earnings on Monday (10/24) before the open.

Analysts expect RSH to report 36 cents per share, a penny less than a year ago. But that’s a rather optimistic outlook, given that the company has averaged shrinkage of -16.6% in year-over-year earnings per share over the past three quarters.

Furthermore, the retailer has had problems meeting analyst expectations.  Over the past two years, the company has had three beats, three misses and two meets. That’s not exactly a track record that inspires much confidence among investors, which is why performance after recent reports has been spotty at best.

On the charts, the stock has been on a slide for the past 18 months, dropping more than 45% from its April 2010 peak.  The shares are down 30% this year, although they’ve been treading water for the past four months.  But the descending 100-day moving average is now in play, as is the $13 level, which houses some heavy call open interest.  That combination has proven stubborn to overcome for the past week.

RadioShack used to be the destination for electronics do-it-yourselfers. But its position has steadily eroded under the weight of much-bigger competitors such as Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT). Throw in the Amazon.coms (NASDAQ:AMZN) and Targets (NYSE:TGT) of the world, and it’s clear that RadioShack is struggling to find its niche.

Even the addition of the iPhone to its product mix hasn’t moved the needle.  The company only carries the AT&T (NYSE:T) version, and consumers haven’t seemed to connect the two brands.  While iPhone 4S units have disappeared from most other store shelves, the phone is in plentiful supply at your local RadioShack.

To put it mildly, that’s not an encouraging sign heading into earnings.  Buy the RSH Nov 13 Puts here for less than a buck.

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