RadioShack Corporation's Cost Cutting Is Too Little, Too Late

RadioShack Corporation is closing stores to try to stem the company's big losses -- but it's too little, too late.

Mar 6, 2014 at 5:44PM

Earlier this week, RadioShack Corporation (NYSE:RSHCQ) announced that it plans to close up to 1,100 stores this year. That represents about one quarter of the company-owned store base within the U.S.

RadioShack's drastic decision is pretty sensible in light of the company's dismal earnings trajectory. Revenue declined more than 10% in 2013, to $3.4 million, leading to an adjusted net loss of $305.8 million. However, the company is so far from reaching profitability now that even store closures and an aggressive turnaround plan are unlikely to save the company from bankruptcy.

Squandering shareholder value
RadioShack's fall has been fast. As recently as 2010, the company was solidly profitable, and shares were trading for more than $20. In the last two years or so, RadioShack's losses have rapidly mounted, sending the stock to a multi-decade low of $2.

RSH Chart

Radio Shack Price vs. Earnings Chart, data by YCharts

Even as RadioShack's profitability was plummeting in 2011 and 2012, the company's significant tangible book value represented a potential windfall for shareholders. As RadioShack shares dipped toward $2 for the first time in late 2012, the company was valued at less than 40% of its tangible book value.

Since Radio Shack had (and still has) fairly modest lease obligations, it seemed that management could unlock value for shareholders by downsizing the business -- or even shutting it down entirely. With tangible assets outnumbering liabilities by $562 million as recently as the end of 2012, there seemed to be plenty of value for investors even if RadioShack didn't have a long-term future.


RadioShack should have started downsizing at least two years ago

Fast forward to today, and RadioShack has destroyed all of that shareholder value. By the end of 2013, the company's tangible book value had dropped to less than $200 million. The primary culprit was RadioShack's big 2013 operating loss, but ill-advised share buybacks undertaken while RadioShack stock still traded for more than $10 also hurt.

Too little, too late
Because RadioShack's tangible book value has all but vanished, the only hope for shareholders is a full-blown recovery. While not 100% impossible, this scenario seems very far-fetched.

Last year, RadioShack posted an adjusted loss of more than $300 million on a revenue base of just $3.4 billion. Even if store closures and other initiatives allow RadioShack to slash its operating expenses by 20%-25%, the company will still need significant comparable-store sales growth to drive a return to profitability.

Even comparable-store sales growth may not be enough. While RadioShack has touted its new concept stores as "a significant advancement in technology retailing," management was evasive when asked about the profitability of these stores on the company's recent earnings call.

This led analyst Scott Tilghman of B. Riley to surmise that these stores are also losing money. Even if these concept stores have higher revenue than the company average, investors shouldn't get too excited until they start covering their costs.

Foolish conclusion
RadioShack's new leadership team is making a strong effort to revive the storied retailer despite the secular headwinds facing much of its business. However, RadioShack's losses are so deep, and the company has burned through so much of its tangible book value in recent years, that it probably won't matter.

RadioShack executives assured investors this week that the company has adequate liquidity to get through 2014, but that's not especially comforting, because any return to profitability will likely be years from now. RadioShack's chances of avoiding bankruptcy seem slimmer than ever.

This innovation could change your life!
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the eight-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information