Still Early to Expect Much Out of RSH Shares

3/4 - "Our thesis on RSH remains the same. Without top-line growth, margins will decline despite very impressive cost cutting and controls. Further, achieving growth is difficult to do without giving up gross margin. Given recent deterioration in the retail environment and accelerating problems with one of RSH’s most important business partners (Sprint), we do not see top-line issues being resolved this year."

"We are leaving our 2008 EPS forecast unchanged at $1.35, still well below the consensus average at $1.62. We are reducing our 2009 EPS forecast to $1.30 from $1.35 and initiating a 2010 forecast at $1.50...We’re reducing our price target from $18 to $17 based on 5x our 2008E EBITDA. While this is a discount to BBY at 6x, but a premium to companies like CC and RSH’s historical low at 3.5x."

"We are estimating same-store sales declines of 8% for 1Q08 and 5% for the year...At approximately a third of revenues, we believe any strategy that is going to restore top-line growth has to address the wireless business...The current challenges include declining industry new post paid subscriber growth, competition from the carrier’s own stores, competition in prepaid across retail channels, the lack of AT&T’s hottest selling phone (iPhone), particularly soft business at its partner Sprint and, most recently, increasing competition from Best Buy’s new Best Buy Mobile format."