Promises, Promises At Tandy
In his 15 years as Tandy Corp.'s chief executive, John V. Roach has dangled lots of carrots in front of his shareholders, promising future payoffs from his various diversification strategies. On Dec. 30, Roach tried again. He explained a $170 million fourth-quarter write-off as the price for stronger earnings down the road. The charges cover the cost of shutting down the Incredible Universe electronics superstores and paring back the lackluster Computer City chain--both of which, only four years ago, were the centerpieces of a new retail strategy meant to revitalize the company.
So much for promises. The Fort Worth company is still dependent on its flagship RadioShack chain, despite all of Roach's efforts to diversify. In the past five years, the company has racked up more than $450 million in write-offs, including the distress sale of its computer-manufacturing operations in 1993. Tandy's shares, trading at around 42, are up 54% in the past three years--in line with the Standard & Poor's 500-stock index. But over the past decade, Tandy's stock has dropped 5.7%, vs. a 205.6% rise for the S&P 500. Compared with fellow retailers, Tandy fares no better: Since January, 1988, its shares have gained 28%, vs. a 233.6% leap for the S&P specialty retail group.
Tandy's poor stock performance reflects the troubles the company has had in turning a decent profit. Even though sales have more than tripled during Roach's tenure, from $1.7 billion to $6 billion, net income has grown a mere 25%, to $212 million in 1995. In 1996, because of the write-offs, Chicago Corp. analyst Mark D. Mandel estimates that Tandy lost $90.7 million. Most consumer-electronics retailers, of course, were hard hit during the year by slow sales and intense price competition. But among its peers, Tandy's losses--and its store closings--stand out.
The result: Some Tandy investors are calling on the board to dump Roach. "The report card on Roach has come in year after year, and it has been an F," says Stephen W. Simmons, director of equity research at Retirement Systems of Alabama, owner of about 1 million Tandy shares. Says Thomas R. Jackson, managing director of Prudential Investment Corp., which owns nearly 5% of Tandy's shares: "He has dissipated a significant amount of shareholder capital. It is difficult to understand how the board can watch this go on for more than a decade without taking some action." Simmons says that he would like to see Roach step aside from the day-to-day operations: "The day that happens, the stock will pop up."
AMONG FRIENDS. Counters a confident Roach: "Certainly, everyone is entitled to their own opinion." And the CEO, who was paid $1.4 million in cash and stock in 1995, does seem firmly entrenched, having survived several shareholder actions in the early 1990s. "John has the support of his board," insists Tandy director Thomas G. Plaskett, chairman of Greyhound Lines Inc. Another director, Jack L. Messman, CEO of Union Pacific Resources Group Inc., says: "We are working hard to create and maximize shareholder value."
At first, the board's staunch support seems startling in an era of shareholder revolt and CEO firings. One reason: Tandy's board is stacked with Roach's friends and colleagues. Two directors are former executives, while 6 out of 10 are based in Tandy's hometown of Fort Worth, including William E. Tucker, chancellor of Texas Christian University, Roach's alma mater. Roach is chairman of TCU's board.
Plaskett insists that "this is not a lay-down board." He says the directors support Roach because a company must take risks to grow--and risks don't always pay off. "In the retail business, you have to constantly reinvent yourself," says Plaskett. Besides, insists Roach, "Tandy has made more money in consumer electronics than any others in the industry."
It is true that, until last year, Tandy had turned a profit every year of Roach's tenure. But most of its earnings came from the one business that he did not reinvent: RadioShack, a cash cow with 50%-plus profit margins. The 6,800-store chain accounts for all of Tandy's profits (in good years), about half its $6 billion in revenues, and it throws off some $400 million in cash flow annually. "As long as RadioShack was making money, nobody seemed to care what Roach was doing," says a former Tandy executive. The chain did go through a rocky patch in the late 1980s and early '90s under longtime President Bernard S. Appel. But in 1993, Roach, in a rare move, hired outsider Leonard H. Roberts from Arby's Inc. to run the business. The energetic marketer was named Tandy's president a year ago and is widely seen as Roach's heir apparent.
Roberts has given Tandy its main bright spot by repositioning RadioShack as a service business. In addition, Roberts plans to add 100 new stores annually for the next couple of years, and analysts say the chain also has promising prospects in wireless communications and satellite TV. One deal that stands out: a recent pact under which RadioShack will sell Sprint's telecom services through its stores. Rauscher Pierce Refsnes Inc. analyst George F. Sutton figures the deal could add more than 1% to Tandy revenues.
Hiring Roberts was one of Roach's rare strategic wins in recent years--particularly for a chief executive whose tenure began so promisingly. In the mid-1970s, Roach persuaded Tandy to jump into the nascent personal-computer business--and his company soon became the nation's largest PC maker and seller. By 1981, at 42, Roach was one of the youngest CEOs in the country. But by 1991, after bad bets on technology's future, Tandy's role in the PC industry had dwindled to little more than a bit player.
SQUARE ONE. To recover, Roach in 1993 vowed to build a consumer-electronics retailing empire that would make Tandy "one of the hottest retail growth companies of the '90s." But the promise of that high-growth era faded with the recent restructuring. The Incredible Universe superstores and Computer City chain lost some $90 million in 1996, analysts say. "We attempted to create something totally new in the retail environment that was more high-risk than anything we've ever done before," Roach concedes. "It didn't prove economically viable."
To be sure, Roach can point to a certain number of successes. The money-losing PC-manufacturing business fetched more than $100 million when he sold it to AST Research Inc., and Roach boasts that the spin-off and subsequent initial public offering of O'Sullivan Industries Inc., a furniture manufacturer, brought in $350 million--four times Tandy's original investment.
Meanwhile, Roach is now back to square one: relying on RadioShack. He says he's working on yet another new retail strategy to help get things on track again. He's coy about the details but says it will take advantage of RadioShack's strength in hawking consumer-electronics parts. A few test models will likely roll out this year. "We will continue to look at ways to maximize our existing retail formats," Roach vows. The question now: Will investors and Tandy's board ever tire of going through this dance?
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