The broader market celebrated Russian President Vladimir Putin’s recalling of troops in Ukraine, with the S&P 500 finishing up over 1.5% for the day. However, one well-known retailer was shut out of the party. Shares of Radio Shack Corp. (RSH) plunged over 17% after it announced plans to shutter as many as 1,100 stores nationwide, slashing its retail footprint by a fifth.
The company also reported a fourth-quarter loss of $1.29 per share, well below the consensus. Radio Shack also a narrowing gross margin, rising expenses and dwindling cash flow. Not even a snappy Super Bowl ad could save the struggling electronics store chain. The announcement shocked Wall Street and had analysts pondering whether RadioShack will go the way of Circuit City and file for bankruptcy.
I must say that I’m not shocked RSH didn’t pull through with its fourth-quarter earnings announcement. The Moderately Aggressive stock has been at a D-rated sell for 10 of the past 12 months, due to a combination of anemic buying pressure and weak fundamentals. The fact is that the writing was on the wall for some time.
In fact, looking at the analyst trends for earnings growth, the picture is clear. In the days leading up to the Q4 earnings report, analysts slashed their EPS estimates from ($0.11) to ($0.14) in just a few weeks. The analyst community also lowered their estimates for the first quarter through the end of FY 2014. Not a good sign by any stretch of the imagination. And it turns out that Radio Shack could clear even this low bar.
But if you were on the receiving end of this blowup, there’s good news: We can learn from this and ensure that it doesn’t happen again. My Portfolio Grader tool screens out stocks that are falling in the ranks on eight fundamental metrics as well as institutional buying pressure, a key measure of a stock’s risk-to-return ratio. In fact, Portfolio Grader has isolated three other specialty retailers that are in just as bad shape as Radio Shack, like this mall-based casual apparel retailer, this rent-to-own durable goods chain, or this branded dressy clothing retailer. If you have any positions in your portfolio that match this description I recommend you check them out immediately.