On Sep 16, 2014, Zacks Investment Research downgraded RadioShack Corp. (RSH) by a notch to a Zacks Rank #4 (Sell). The downgrade of this beleaguered electronic and mobile products retailer came on the heels of the company’s dismal quarterly numbers posted in the previous week. RadioShack further stated that it is rapidly running out of cash and may file for Chapter 11 bankruptcy if it fails to make a turnaround in its cash position.
Despite desperate attempts to improve its financials over the last 18 months, the company has failed miserably. RadioShack’s core consumer electronics (including digital TVs, digital music players, and digital cameras) retail business is on a secular downtrend and is unlikely to recover in the near future. Loss of foot traffic is also taking a toll on RadioShack’s mobility business – a platform on which the company had been banking for its future growth.
Meanwhile, intensifying competition from retail giants like Amazon.com Inc. (AMZN), Best Buy Co., Inc. (BBY) and Conns Inc. (CONN) is impeding growth.
Following the release of the second-quarter fiscal 2015 numbers, investors’ apprehension about RadioShack’s future has risen considerably. The company’s adjusted loss per share of $1.00 was wider than the Zacks Consensus Estimate of a loss of 59 cents. Meanwhile, total revenue came in at $673.8 million, down 21.8% year over year and below the Zacks Consensus Estimate of $742 million.
Notably, comparable store sales for company-operated stores and kiosks (stores and kiosks that have been operational for at least a year) were down 16.9% in the reported quarter mainly affected by traffic declines and slowdown in the mobility business.
Also, at the end of the quarter under review, RadioShack had only $30.5 million in cash & cash equivalents compared with $109.6 million at the end of Feb 1, 2014. This hints at the possibility that the company is fast running out of cash and will not be in a position to fund its operations over the long haul unless it formulates a concrete plan to boost its cash position. Moreover, total debt at the end of the quarter was significantly higher at $656.9 million as against $613 million at the end of Feb 1, 2014.
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