Tandy sells stock in Computer City; spin-off possible

Discount Store News, August 4, 1997 by Robert Scally

FORT WORTH, TEXAS -- Free of the black hole of the Incredible Universe and the light of a few Computer City stores, Tandy Corp. profits have soared due to a renewed focus on its core Radio Shack store chain.

Tandy has also announced a plan that may lead to the eventual spin-off of its Computer City chain as a separate company within the next nine months to two years.

For the second quarter ended June 30, Tandy earned $28.7 million, compared with $9.3 million a year earlier. Revenue fell 15% to $1.15 billion from $1.35 billion, in part due to turning out the lights in the Incredible Universe chain and the closings of several Computer City stores.

First half revenues fell 13% to $2.43 billion from $2.79 billion. Net income more than doubled to $54.3 million from $23.8 million during the same period last year.

The Incredible Universe and Computer City closings were both part of a plan announced by Tandy in December to refocus the company's efforts on Radio Shack.

Closing the 17 Incredible Universe stores and shuttering 21 Computer City stores apparently worked so well that Tandy is considering a new plan that will eventually rid it of Computer City.

Tandy is selling a 19.9% stake in its troubled Computer City chain to three top computer retailing executives and may consider spinning off the chain as a separate company.

Nathan Morton, former chairman and ceo of Comp-USA, will become Computer City's ceo and co-chairman with John Roach, chairman and ceo of Tandy. Avery More, former president and ceo of corporate computer reseller CompuCom, will become the vice chairman of Computer City. Robert Boutin, former cfo of CompuCom, will become cfo of Computer City.

Roach also will fill the other co-chairman position at Computer City.

The three executives, through a new entity called Eureka Ventures, have signed a definitive contract to acquire 19.9% of the new Computer City subsidiary for cash and notes.

Tandy and Computer City's new management triumvirate will evaluate the possibility of making Computer City an independent company, and Eureka Ventures is purchasing a warrant to buy an additional 20.1% of Computer City for cash and other consideration based on book value if earnings goals are met.

Tandy is hoping to make Computer City profitable, or at least make sure it is heading in the right direction financially, before it signs off on any spinoff, said Martin Moad, Tandy's vp of investor relations.

Exactly what form the Computer City spin-off would take is yet to be determined, Moad said.

The move "should accelerate the turnaround of Computer City, and their equity position provides excellent incentive to enhance Tandy's shareholder value," said Roach. "The new executives bring significant experience in computer superstore retailing, corporate computer reselling and finance to Computer City."

For its part, Radio Shack will concentrate on becoming a telecommunications store in addition to its niche as a source of parts, peripherals and gifts. Moad said. Radio Shack stores will feature sales of telephones and cellular phones as part of this effort.

Tandy Corporation currently has 6,800 Radio Shack stores, including 4,800 company-owned stores and 94 Computer City locations.

Tandy plans to open 70 to 80 new stores during the next year, Moad said.

"We're always chasing demographics, trying to find locations that work," Moad said.