Can this man save RadioShack?
Once he runs out of pennies to pinch, RadioShack's new CEO will have a tough time finding new ploys to resurrect his company, says Fortune's Peter Elkind.
(Fortune Magazine) -- On Feb. 27, a day U.S. markets took a major beating, the single best performer in the entire S&P 500 was RadioShack (Charts). Shares of the embattled Fort Worth retailer jumped 12%, to more than $25, after the company announced it had boosted quarterly profits by 65% despite sinking sales. But was this a sign of resurrection - or the last gasp in a long downward spiral?
The company's fate rests in the hands of Julian Day, the British-born cost cutter who was brought in as CEO last July, when the company's stock - once $78 in 1999 - bottomed out at $13.73. Day is a veteran of Sears (Charts) and Kmart. Upon his hiring, RadioShack's board awarded him four million options at a strike price below $14 and the ability to cash in all the shares if he raised the stock above $30. (He would still net nearly $40 million if the stock remains at $25.)
The top job became available after CEO David Edmondson resigned following a local newspaper report that he had been arrested for drunk driving and had fabricated his bachelor's degree from Pacific Coast Baptist Bible College.
Day, who immediately canceled analyst conference calls after taking the reins, soon earned a little Jay Leno attention when he laid off 400 members of the headquarters staff by e-mail. RadioShack's image took an additional hit when a longtime board member, Ronald Elmquist, was arrested on kiddie-porn charges and resigned in November 2006. (Elmquist has pleaded not guilty and denied the allegations.)
Unfazed by the negative publicity, Day pared the company's payroll, advertising, and capital budgets, and when he finally spoke with analysts for the first time last month, he described his approach as studying the business "from an overhead point of view, from a distance of about two inches."
Some analysts have hailed his moves as evidence of a powerful turnaround. But others remain skeptical that he will find the recipe for restoring RadioShack to "relevancy," as one put it.
After all, slashing and burning can drive profits, but only for a time. They doubt that the company, with its sagging sales, can boost earnings enough to justify the big run-up in the share price, fed in part by speculation that Day is a stalking horse for private investor Eddie Lampert. In 2003, Lampert installed Day as CEO at Kmart, where he led the company out of bankruptcy.
So what happens when the penny-pinching runs its course? At RadioShack, that is the big question. It remains to be seen whether Day has the answer.