Electronic and mobile products retailer RadioShack Corp. (RSH) received a solid boost after its investor Standard General LP reportedly announced that it is in talks with RadioShack regarding a financing deal to to enhance the company’s cash position before the holiday season. Following the development, the company’s shares jumped nearly 25%.
In order to boost the beleaguered company’s liquidity, Standard General and other new investors are looking for extensive recapitalization of RadioShack, which could be completed by early 2015. Standard General – which increased its stake in RadioShack from 7.08% to 9.8% – has the choice to purchase 3 million shares at a price of $1.50.
Despite desperate attempts to turn around business over the last 18 months, RadioShack has not seen much success. 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 future growth.
Of late though, RadioShack had undertaken several strategic moves to revive its business. Management has been focusing on reducing costs, which includes closing up to 200 stores every year over the next three years; lowering rent expense through negotiations with landlords; reducing compensation expense by optimizing labor hours and store operating hours; and reviewing other expenses to identify cost-reduction opportunities. Unfortunately, none of these methods has led RadioShack out of the dark.
Investors’ apprehension about RadioShack’s future increased further following dismal financial numbers reported for the second quarter of fiscal 2015, on Sep 11. The company’s adjusted loss per share of $1.00 came in wider than the Zacks Consensus Estimate of a loss of 59 cents. Likewise, total revenue of $673.8 million was also down 21.8% year over year, lagging the Zacks Consensus Estimate of $742 million. At the end of the quarter, RadioShack had only $30.5 million in cash & cash equivalent compared with $109.6 million as of Feb 1, 2014.
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.
RadioShack currently has a Zacks Rank #4 (Sell).
Other Stocks to Consider
Better-ranked stocks in this sector include DSW Inc. (DSW), Christopher & Banks Corporation (CBK) and Express Inc. (EXPR). All these stocks hold a Zacks Rank #2 (Buy).
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