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More on Radio Shack (RSH)

April 14, 2012

I want to look at a couple of more aspects of Radio Shack: management, compensation and share ownership.

Management
The current CEO, James Gooch, has been with Radio Shack since 2006, prior to which he was at KMart/Sears in several different financial functions. He was promoted first to President of Radio Shack in January 2011 and then added the CEO title last May when Julian Day retired. Day was brought in as CEO of Radio Shack in 2006 after prior stints at KMart prior to its merger with Sears. Clearly Gooch was brought on as a protegé when Day came on board. One might therefore expect a continuation of the Day strategy under the new CEO. Recent profitability problems (4Q 2011) will test this strategy and the new CEO. Issues related to Sprint/Nextel and T-Mobile mobile device resale has been generally identified in the press as the cause of reduced profitability in Q4 2011. But is this really the case? On page 6 of the 4th quarter/full year earnings press release, reduced sales at domestic owned retail outlets appear to be mainly in consumer electronics (-30%), specifically digital music players, digital cameras and camcorders, and GPS products. New management’s ability to devise and implement a strategy to counter this problem is still unclear at this point.

Management ownership
With Julian Day in charge I had a good feeling. His stock and (mostly) options totalled almost 5% of equity. With that kind of ownership I felt comfortable that management interests were pretty well aligned with those of shareholders. Things are different under Gooch. His ownership amounts to about 350k shares and what looks to me like about 650k options (we’ll have a better understanding when the proxy comes out in a couple of weeks), or about 1% of total outstanding shares. But remember, only about 35% of these are real shares and all the options granted are clearly out of the money at this point.

Institutional ownership
According to Yahoo finance there are only 2 institutional investors with a greater than 5% interest; Perkins Investment Management (9.7%) and LSV Asset Management (5.1%). The former is a value oriented manager associated with the Janus Funds with 20 billion AUM while the latter is “a quantitative value equity manager providing active management for institutional investors” with $58 million AUM. Interestingly, there are no activist or hedge funds listed among the largest owners.

What do I make of all of this? My reaction is neutral to all the points above. I would prefer greater management ownership and greater clarity on what the retail strategy going forward will be. Management continuity provided by Gooch is reassuring, though the development of problems only six months after his taking the reins is somewhat troubling; without a clearer vision into the mechanics of the problem one has to consider that this could be mere coincidence. So far, then, I see nothing more to dissuade me from taking a position at the ‘right’ price.

I’ll be taking some further pokes at Radio Shack in the coming weeks, and, of course, looking forward to first quarter results.

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3 Comments
  1. helpful as always…thanks

  2. btw are your Portfolio Holdings up to date?

    • Yes, VR, I try to keep them as up-to-date as possible but sometimes something slips through.

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