RadioShack Corp reported a much wider than expected quarterly loss on weak sales of wireless phone contracts and higher demand for less-profitable smartphones, a trend its new chief executive promised to change.
The dismal results raised fresh concerns about the future of the electronics chain, which has seen sales in free-fall for over a year amid executive departures, cutthroat competition and an image problem.
Despite its ubiquitous presence in the United States, analysts say the once-iconic retailer has not done enough to transform itself into a destination for mobile phone buyers or to become sufficiently hip to woo younger shoppers.
RadioShack was once a famous hangout for radio and electronics enthusiasts, but its name now evokes somewhat dated images, making it harder to win younger customers, industry-watchers have said.
"I know we have some gaps and improvements that need to take place," CEO Joseph Magnacca said on Tuesday, promising changes in branding and advertising soon.
Magnacca, who is often credited for revamping Duane Reade drugstores before Walgreen Co bought the chain, said he would give RadioShack's "strategic" New York City locations a makeover in the next few weeks.
"This work will also touch our online and mobile channels over time," Magnacca, who took the helm in February, said in a statement.
He said his turnaround plan was on track and he was confident of making the chain relevant again. RadioShack shares were up 3.5 percent at $3.25 on the New York Stock Exchange at midday.
Some on Wall Street were not so confident.
"We are starting to suspect this could be a case of "too little, too late," BB&T Capital Markets analyst Anthony Chukumba said, adding that he was eager to obtain more details on Magnacca's turnaround plan.
The retailer has seen high turnover within its top ranks during the past three years. Magnacca's predecessor stepped down after spending slightly over a year on the job.
The company, which also lost its marketing and merchandising chiefs last year, hired a new marketing chief and a senior vice president of store concepts last week.
"The numbers today stink, but they are not his making," said Janney Capital Markets analyst David Strasser, who called the first quarter "a disaster by any stretch of the imagination."
During the period, sales fell 7 percent to $849 million, missing the analysts' average estimate of $960.7 million.
TALKING TO A NEW CUSTOMER
Strasser, who has a "neutral" rating on the shares, urged investors to give the new CEO the benefit of the doubt, citing his record of successfully reviving a declining brand.
On a conference call, Magnacca sought to reassure investors by providing more details of his turnaround plan.
He said the retailer will invest in private brands and high-margin accessories so that it can offset the hit to margins from selling less-profitable phones.
He also plans to have a bigger online assortment and alter the store format so that some items are displayed by brand. Magnacca also plans to invest in television ads, newspaper inserts, digital and social marketing.
"The objective is to, again, talk to a new customer as opposed to our existing one," he said, adding that some of these changes will not require a significant amount of capital.
"We all like technology when it helps us become more efficient, but we love technology when it makes life more fun and we need to bring that type of passion to the RadioShack brand in order for our customers to think of us first."
ANOTHER WEAK QUARTER
RadioShack has been increasingly focusing on selling calling plans and smartphones, particularly Apple Inc iPhones.
While the iPhone helps pull customers into stores, retailers make less money on it than on handsets that use Google Inc's Android operating system.
In the first quarter, RadioShack sold fewer postpaid phones than a year earlier. Gross margin was 40 percent of net sales, a decline of 0.8 percentage point, because demand was stronger for less-profitable smartphone models.
The company also faces aggressive competition from Best Buy Co Inc, Amazon.com Inc and stores operated by mobile phone companies themselves.
RadioShack's first-quarter net loss widened to $43.3 million, or 43 cents a share, from $8 million, or 8 cents a share, a year earlier.
Excluding the Target mobile centers, which RadioShack stopped operating, the loss was 35 cents a share, while analysts on average were looking for a loss of only 10 cents, according to Thomson Reuters I/B/E/S.
At the end of the quarter, RadioShack had cash and cash equivalents of $435 million and available credit of $385 million under a facility that expires in January 2016.
(Reporting by Dhanya Skariachan in New York; editing by Lisa Von Ahn and Matthew Lewis)