RadioShack’s New CEO Faces Challenge as Profit Slides

RadioShack Corp. hired Joseph C. Magnacca as its fourth chief executive officer in three years, tapping a drugstore marketing expert to help revive the unprofitable electronics chain.

Magnacca, 50, takes charge on Feb. 11, Fort Worth, Texas- based RadioShack said in a statement yesterday. He joins the retailer from Walgreen Co., where he served as executive vice president in charge of marketing and merchandising efforts for more than 8,000 stores.

Finding ways to boost sales without losing money will be the main challenge for Magnacca. Analysts estimate RadioShack lost money in 2012 for the first annual loss in at least 11 years, according to data compiled by Bloomberg. The chain faces growing competition from Best Buy Co. and Amazon.com Inc. as more consumers compare prices online.

“The price transparency within the consumer electronics sector makes it much harder for the company,” said Scott Tilghman, an analyst at B. Riley & Co. in Boston. He recommends selling RadioShack shares. “Merchandising remains a big challenge, handicapped by the company’s small stores. I think it’s a tough go for any executive,” Tilghman said by e-mail.

RadioShack climbed 10 percent to $3.42 at the close in New York. The company’s shares have declined for three years, including a drop of 78 percent in 2012.

Magnacca succeeds Dorvin Lively, named interim CEO in September following the departure of James Gooch after 16 months on the job. Julian Day departed as CEO in 2011.

Analysts on average project RadioShack may post a net loss of $72.7 million in 2012, compared with a profit of $72.2 million a year earlier.

Suspended Dividend

RadioShack suspended its dividend in July after the retailer’s increasing dependence on lower-profit mobile phones such as Apple Inc.’s iPhone eroded profitability.

RadioShack plans to end a money-losing venture selling smartphones in Target Corp. stores in April. In the first nine months of the year, selling phones through the second-largest U.S. discount retailer generated losses of $38.2 million, the company said in a filing on Oct. 23. More losses from the venture are likely in the fourth quarter, said Anthony Chukumba, an analyst at BB&T Capital Markets in New York. The company is expected to report results on Feb. 21.

‘Closing Stores’

A turnaround entails “probably closing stores and figuring out a way to increase the profitability of their wireless business,” Chukumba said by telephone. He recommends holding RadioShack shares.

The retailer has more than 4,600 company-run stores in the U.S. and Mexico, as well as 1,500 wireless phone centers in Target stores in the U.S. It also has about 1,100 dealer and other outlets worldwide.

Best Buy, the biggest consumer-electronics retailer, cut holiday prices and matched online rivals’ prices to compete with Amazon and Wal-Mart Stores Inc. Best Buy, based in Richfield, Minnesota, is also accelerating the opening of smaller stores dedicated to selling mobile phones, e-readers and tablets, with some opening in strip shopping centers competing with RadioShack.

Magnacca was president of the Duane Reade drugstore chain when it was acquired by Walgreen in 2010 and was responsible for the integration of the business after the acquisition. He previously worked for the Canadian drugstore chain, Shoppers Drug Mart Corp., and for Canadian grocer Loblaw Cos.

Magnacca boosted private-label brands and took other steps to boost traffic at Duane Reade. Those improvements under Magnacca and other Duane Reade executives led Walgreen to buy the retailer, Walgreen Chief Financial Officer Wade Miquelon told analysts in 2011.

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net