As reported by The Wall Street Journal, beleaguered electronic and mobile products retailer, RadioShack Corp. (RSH), may possibly file for bankruptcy protection in early February. The company has been struggling to raise enough cash and credit to stay afloat, despite desperate attempts to turn around business over the last 18 months.
Apparently, the company is considering selling its assets on bankruptcy grounds and is in talks with a private-equity firm that could buy the same. However, there are chances that the talks might not materialize, in the event of which the company may consider alternatives like near-term recapitalization or debt restructuring.
According to a reliable source, RadioShack has also reached out to potential lenders that can help with a loan to fund the company’s operations during the bankruptcy case. Earlier, The Wall Street Journal had reported that Salus Capital Partners has agreed to offer $500 million to RadioShack for the same.
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.
In Sep 2014, the company announced that it is running out of cash and may file for Chapter 11 bankruptcy if it fails to improve its cash position.
In the recent past, RadioShack had undertaken several strategic moves to turnaround its business. The company had redesigned its retail website with new deals in the offering. Also, management had 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.
Dismal Quarterly Numbers
Investors’ apprehension about RadioShack’s future increased further following dismal financial numbers in the third quarter of fiscal 2015, reported on Dec 11, 2014. The company’s adjusted loss per share of $1.23 was much wider than the Zacks Consensus Estimate of a loss of $1.07 per share. Meanwhile, total revenue came in at $650.2 million, down 16.1% year over year and considerably below the Zacks Consensus Estimate of $724 million.
At the end of the reported quarter, RadioShack had only $43.3 million in cash & cash equivalent compared with $296.6 million at the end of Oct 31, 2013. This hints at the possibility that the company is fast losing cash and may not be in a position to fund its operations beyond the ‘very near term’, unless it formulates a concrete plan to increase its cash. Moreover, total debt at the end of the quarter was much higher at $841.4 million versus $613 million at the end of Feb 1, 2014. Click here for the complete fiscal third-quarter earnings report >>
The Bottom Line
Unfortunately, all efforts of this Zacks Rank #3 (Hold) stock to ramp up sales have fallen flat due to rapid changes in consumer buying trends. Buyers nowadays prefer purchasing online to visiting retail stores. Moreover, most consumers prefer tablets and smartphones today, which are less profitable for the retail industry.
We believe, under such circumstances, it might be difficult for RadioShack to make a substantial turnaround in its business in the face of stiff competition from retail giants like Amazon.com Inc. (AMZN), Best Buy Co., Inc. (BBY) and Wal-Mart Stores Inc. (WMT).
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