Tandy Tumbles After Saying Sales Lagged Goal

The shortfall was pinned on Tandy's failure to predict demand for low-priced computers and digital phones.
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Updated from 10:58 a.m. EST

Shares of

Tandy

(TAN) - Get Report

plunged Friday after the company, which operates the electronics retailer

RadioShack

, said its same-store sales increase for the first half of December put it slightly below its goal of an 8% to 10% increase for the month.

Tandy's stock dropped as much as 33% to a three-month low of 44 after a delayed opening. But it recouped some of its losses as investors digested the news. Tandy was down 14 3/8, or 22%, at 51 5/8 in afternoon trading. (Tandy settled down 13 5/8, or 21%, to 52 3/8.)

Len Roberts, chief executive of Tandy, attributed the revenue shortfall to the company's failure to accurately predict demand for low-priced computers and digital phones.

"We just didn't buy enough at the low end," said Roberts, referring to the computer shortage. Roberts spoke to analysts in a conference call.

He attributed the failure to stock up on digital phones to an earlier-than-anticipated transition from analog cellular to digital cellular phones.

But Roberts said he expected to reach a double-digit sales gain for both the full year and fourth quarter and to achieve Wall Street's target for its earnings.

The company is expected to earn 62 cents a share, according to the consensus estimate of analysts polled by

First Call/Thomson Financial

.

Dennis Telzrow, an analyst at

Hoak Breedlove Wesneski

, said this was not the first time Tandy had failed to underestimate demand.

"They were unprepared for some of the demand at the low end" last year, he said. "We would have expected them to have learned a lesson then." Telzrow has an accumulate rating on Tandy and his firm does not do any underwriting for the company.

But Telzrow noted that a supply problem was better than a demand problem.

"It's a concern as to how well they can predict and meet demand," Telzrow said, adding, "a demand issue on the cellular side -- that would be a much more severe problem." He said he was confident the company could meet its earnings target.

Cellular phone products make up about 15% to 16% of Tandy's sales while personal computers account for 8% to 9% of sales.

The company, which is based in Fort Worth, Texas, noted that historically 55% to 60% of its monthly sales normally occurred in the latter part of the month.

But some analysts said it was hard to imagine that enough supply would be on the shelves in time to jumpstart December sales.

"If they are going to

Nokia

(NOK) - Get Report

and

Motorola

(MOT)

right now then they may only have relief toward month-end," said Peter Miselis, a portfolio manager for

Avatar Associates

. He declined to disclose the amount of Tandy shares his firm owns.

As for the competition,

Circuit City

(CC) - Get Report

, which Friday reported third-quarter fiscal earnings of 26 cents a share, in line with expectations, ended the session down 15/16, or 2%, at 41 5/8, in what was seen as a sympathy play.

Best Buy

(BBY) - Get Report

, which was down earlier in the day, closed up 1/4, or 2%, at 14 1/2.

Circuit City and Best Buy are known for having wider product mixes than RadioShack, which is more reliant on wireless products for revenue than either of its competitors. And Miselis said there was a chance that they might benefit from Tandy's failure to buy enough supply.

"It's possible that consumers who can't find what they want will go elsewhere," he said.

Despite the sharp decline in Tandy's share price, the company still closed the day at a premium to Circuit City and Best Buy. It was trading at a multiple of 30 times estimated 2000 earnings, while Circuit City and Best Buy were trading at multiples of 22 and 25 times estimated 2000 earnings, respectively.