RadioShack Turns Into The Shack and Turns Around Business

Retailer RadioShack Corp. (RSH) reported better-than-expected earnings Monday after the bell, joining a long list of consumer discretionary names to surprise analysts this earnings season.  The Shack, as it prefers to be called (a name that can’t help but inspire confidence) reported Q1 EPS of $0.39 vs. estimates of $0.36 and revenue of $1.04 billion vs. estimates of $1 billion.  Comparable store sales for stores + kiosks grew 4.7% year-over-year and total revenue was up 4%.  Inventory numbers were up big time, as the company ended the Q with $688.7 million in inventory, up $18.1 million from last Q and $112.9 million YOY.

The increase in inventory was due in large part to RSH’s transformation from an all-purpose retailer into a much more narrowly-focused retailer of mobile devices.  This investment in wireless products seems to already be paying off, as the company cited higher Sprint-Nextel (S) post-paid wireless sales, the addition of T-Mobile products and increased sales of pre-paid wireless handsets as the major drivers behind the comparable store sales growth.  Sales of accessory and power product platforms came in better-than-expected as well.

Shares are trading up greater than 2% after-hours on the good news after popping as much as 4% in the initial moments following the report.  RSH last changed hands at $23.45, and is now trading at greater than 3X its March lows.  From a technical perspective, RSH broke out of an 8-week cup-with-handle base during the week of March 1st on big volume and has moved up steadily ever since.  At the moment, shares are just shy of 9% above the $21.56 buy-point of the cup, and that’s a bit too extended for you to want to test the waters, particularly in light of Monday afternoon’s selling pressure.  I recommend waiting for a bit of a pull-back, ideally to around the $22.50 area, and then buying on a re-taking of the 20-day moving average, currently situated at $22.91.  This will allow shares to gain a solid footing at current levels while also allowing you to wait things out for a bit in case the market sees continued pressure in the coming days.

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Disclosure: No holdings in RSH, S.