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RADIOSHACK DIALS INTO THE TOP SPOT IN HFN'S SUPER SPECIALISTS REPORT.

NEW YORK-In the first HFN Top Performing Consumer Electronics Super Specialists report, RadioShack is king of the hill.

RadioShack joins Best Buy and Rex Stores as top performers with strong profit and operating margins as well as consistently robust earnings growth.

And they have also gained the attention of Wall Street investors.

In the super specialists ranking report, RadioShack, Best Buy and Rex Stores have performance ratios that make them best in class, which may help explain why their stock prices are trading at or near 52-week highs.

The performance ratio (see chart on page 32) is calculated by averaging six key financial ratios, including operating margin, return on assets and earnings growth.

RadioShack pulled ahead of the pack and took first place with a ratio of 14.73. Best Buy and Rex Stores came in with ratios of 10.47 and 10.16, respectively. Ultimate Electronics had a ratio of 4.42 while Circuit City, Good Guys and Tweeter each had negative ratios.

The overall performance of these consumer electronics specialty retailers puts them a little behind other home goods specialty retailers such as Bed Bath & Beyond, Pier 1 Imports and Williams-Sonoma, which have performance ratios, as calculated by HFN, in the range of 14.9 to 19.88.

It's important to note that the consumer electronics specialty retailers tend to take it harder on the chin in regard to markdowns. They tend to work on tighter margins than other types of retailers, according to analysts.

Still, the top-tier consumer electronics super specialists are strong operators that know how to maximize their profits.

RadioShack, for example, has an operating margin of 9.3 percent for the trailing 12 months, which is one of the highest ratios at retail. And the company pulled it off with a five-year negative revenue growth rate.

Donald Trott, equity analyst with Jeffries & Co., said in a recent research report that RadioShack's earnings in recent quarters tended to benefit from its aggressive share repurchase program. For the second quarter, the retailer repurchased 2.4 million shares.

Trott added that RadioShack experienced an improved gross margin rate for the second quarter, which was due to "well-managed markdowns, decreased sales in lower-margin desktop computers and direct TV, as well as $6 million of supply-chain gains."

Trott and other analysts said they expect the retailer's supply-chain benefits to continue over the next few quarters. As of Aug. 28, RadioShack's stock was trading around $28, which is close to its 52-week high. Trott reiterated a "Hold" rating on the stock.

Best Buy, which has aggressively gone head to head with Circuit City, is the largest super specialist of the top-three performers in the report. By the numbers, Best Buy has the second-largest return on equity, sales growth, operating margin and return on assets.

Last month, Dan Wewer, equity analyst at CIBC World Markets, issued an earnings update report on Best Buy and noted that he sees "favorable margin and expense control trends" as the retailer's management honed in on its core business after divesting its Musicland business.

Subsequently, the retailer raised its earnings outlook for the year.

Darren Jackson, executive vice president and chief financial officer at Best Buy, told Wall Street that "strong comparable-store sales growth, increasing gross profit rates and diligent cost controls all are contributing to the higher earnings guidance from continuing operations for the second quarter and for the fiscal year."

Jackson said as consumers migrate to higher-margin products, such as digital TVs, "the gross profit rate from continuing operations is the largest contributor to the improved outlook."

This is music to an investor's ears. Wewer has Best Buy's stock pegged with a "Sector Outperformer" rating. Shares of the retailer have been trading at around $51, which is the top of its 52-week high.

HOW THE SUPER SPECIALISTS STACK UP

Retailer

Performance Ratio

Profit Margin

Operating Margin

Assets

Return on Equity

Sales Growth

Earnings Growth 1

1) RadioShack

14.73

5.80

9.30

12.41

37.47

-0.88

24.29

2) Best Buy

10.47

2.90

4.60

8.19

24.26

19.53

3.34

3) Rex Stores

10.16

5.10

4.70

6.84

13.97

1.11

29.24

4) Ultimate Electronics

4.42

0.50

0.80

1.25

1.86

17.70

NA

5) Circuit City

-1.78

0.00

0.00

-0.03

-0.04

1.46

-12.08

6) Good Guys

-2.39

-0.40

0.10

-1.47

-5.10

-5.08

NA

7 Tweeter

-28.65

-23.30

-23.70

-47.01

-82.63

33.41

NA

Companies are ranked by the Performance Ratio, which indicates the average of key percentage ratios listed above.

Source: Company reports, Multex Investor, Thomson Financial Solutions as of Aug. 25

Ratios are for the trailing 12 months except sales and earnings growth, which reflects the 5-year growth rate.
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Comment:RADIOSHACK DIALS INTO THE TOP SPOT IN HFN'S SUPER SPECIALISTS REPORT.
Author:Zacziewicz, Arthur
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Article Type:Industry Overview
Geographic Code:1USA
Date:Sep 8, 2003
Words:812
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