2HRS2GO: Tandy looks to a high-speed future
Radio Shack the Internet company?
With more than 7,000 stores around the United States, Radio Shack may be an American cultural icon on par with McDonald's, but today's investors are looking at it as a path to a high-speed future, judging by today's upward tick in shares of Tandy Corp. (NYSE: TAN), following yesterday's annual shareholder meeting. The Wall Street Journal reports that Tandy expects "double-digit sales growth" in May for stores that have been open for a year. But that's no surprise coming off an April that saw an 18 percent jump in comparable store sales.
More likely, the market focused on the issue that occupied a short Journal story of its own. Radio Shack plans to expand its resale of broadband Internet access. Tandy -- already a reseller of Sprint's ION service -- signed a deal to peddle Northpoint Communications' DSL offering, and today announced a $75 million acquisition of cable installer Amerilink Corp. (Nasdaq: ALNK)
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It's another step in Tandy's never-ending quest for a new image, instead of the stodgy do-it-yourself-electronics stereotype associated with Radio Shack for decades. Now think of it as America's Home Connectivity Store, Roberts says.
Something catchier might be called for, but still, the goal is laudable.
"I think it's a great acquisition," says Dennis Telzrow, analyst with Hoak, Breedlove, Wesneski & Co. "They've been talking a lot about home connectivity ... Clearly, this gives some definition to it. This gets them there a lot quicker."
Just think: your favorite electronic doodad store can become your ISP. Well, no, since Tandy is just the marketer. But selling high-speed Net access does make Radio Shack more of a one-stop shop: computer, satellite/cable/DSL modem, Internet service, even power strips to plug everything into.
There are installation fees to collect, including 15,000 a week just from Amerilink's current business. But more lucrative are the ongoing residual fees -- perhaps $100 million in a few years, says CEO Leonard Roberts -- that Tandy stands to collect after the service goes in.
After Tandy's missteps over the years (Computer City being the latest one, but you can trace them all the way back to 1981 when the company deluded itself into thinking it could compete with IBM in the PC manufacturing market), we all should hope this one pans out. This is, after all, an American icon.
But even if it does work, keep in mind that Tandy is still a brick-and-mortar operation. For a company that posted $4.8 billion in revenue last year, $100 million in two years won't even be a drop in the bucket, it'll be an H2O molecule. Yet investors haven't shied from pumping money back into the stock, which is now trading at 27 times estimated 1999 earnings. That's not very good for a technology stock -- but it's fine for a retailer.
Other issues:
Happauge has carved a profitable niche selling TV tuners for computers, but it's still a niche market, and likely always will remain one. even if the pictures are clearer, how many people are willing to spend $500 to watch TV on their PC? Especially when the PC itself can be had for $500 nowadays.
The overall technology sector fell along with everything else in the market as the trading week neared its close. With two hours left in the regular trading, the Nasdaq Composite Index was down 17.96 to 2524.27, the S&P 500 had fallen 6.6 to 1332.23, and the Dow Jones Industrial Average had slid 53.39 to 10,834. 22GO>