Can RadioShack's Concept Save the Company?

What options remain for RadioShack (NYSE: RSH  ) , one of retail's most beleaguered players? The electronics and accessories retailer has the headwinds of both a weak consumer-spending environment and a store model that simply isn't working anymore. This week, the company announced it would close up to 1,100 of its underperforming stores, prompting a double-digit sell-off and leaving the company with one of its lowest stock prices ever. Management has tried to do the right things and deserves credit for the effort, but this appears to be a business that could not be saved with even the most expert tactical turnaround team. Is there anything left to salvage?

Abandon ship
With same-store sales down 20% in the past quarter and an adjusted net loss of nearly $130 million, RadioShack shows signs of a business in total tailspin. The company faces a similar, if slightly more encouraging, situation to J.C. Penney's concept-store renovation project that ultimately failed.

RadioShack management has put the pedal down on its concept stores: less cluttered, shopper-centric layouts with fewer SKUs and a simpler message. The idea makes sense, and from what management has reported, consumers seem to dig it. In the meantime, though, the company's 4,000-plus locations (largely nonconcept stores) are crashing fast. With a full-year loss that is far greater than the company's market cap, RadioShack needs a quicker fix.

Furthermore, there is still doubt that the company's concept stores can really flourish enough to carry the company. They look great at the moment compared to the traditional RadioShack store, and the earnings report cited strong sales figures, but at the end of the day the company will still be selling goods that are available more conveniently and often less expensively on the Internet. The long-term future of RadioShack has not been secured.

Salvage
After the company closes down roughly 20% of its locations around the country, there will still be thousands of largely company-owned stores. The company has an impressive portfolio of prime retail space, and those looking at liquidation value of the business are likely focusing the bulk of their interest on real estate. But on the operating level, there simply isn't much left.

RadioShack doesn't have a liquidity issue in the near term as it recently secured a round of financing, but this is creating a balance sheet that should worry equity investors first and foremost. With declining sales and cash flow, in addition to a large marketing and sales expense, the company has a tremendous hurdle to overcome in order to get back in the black.

Turnaround retail stocks can be extremely rewarding if the hole isn't too deep. RadioShack has a dedicated and proactive management team that has done what it can, but that's only part of the battle. The business risk here makes the stock simply undesirable in its current state.

Tap Buffett's wisdom to find winning stocks
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2863343, ~/Articles/ArticleHandler.aspx, 12/18/2014 1:21:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement