RadioShack Corporation Could Be Bankrupt Next Year

Another quarter, another big miss from RadioShack  (NYSE: RSH  ) . But now more than ever, investors are really starting to wonder how much longer The Shack can keep this up.

Source: RadioShack

To be sure, disappointing results have driven shares of the struggling electronics retailer down more than 11% so far today. Sales for the 13-week period ending May 3 just fell more than 13% year over year to $736.7 million, driven by a 14% plunge in comparable-store sales. That translated to an adjusted loss of $99.3 million, or $0.98 per share. Both figures were well short of analysts' estimates, which called for a loss of $0.52 per share on sales of $767.5 million.

RadioShack CEO Joseph Magnacca didn't sugarcoat it, describing "lackluster consumer interest in the current handset assortment and increased promotional activities across the industry including the wireless carriers." The end result, Magnacca admitted, was "disappointing sales and gross margin performance."

Still, he insisted the company is making progress in its turnaround. Specifically, RadioShack's new concept stores are still "driving strong sales growth," and management has started executing a 100-store remodel program to implement the most successful components in other locations. What's more, RadioShack is looking forward to selling higher-margin items unique to its brand, notably including innovative products from hardware startups thanks to a new partnership with PCH.

Finally, RadioShack closed 22 stores in fiscal 2015, and expects total closures to reach up to 200 based on location, area demographics, and financial performance going forward.

There's a catch
But in the grand scheme of things, this is hardly comforting considering RadioShack currently operates more than 4,200 stores in the U.S. alone. And after its fourth quarter last year, RadioShack pitched plans to close as many as 1,100 "lower-performing" locations as it strived to achieve breakeven results.

What's more, in order to obtain $835 million in much-needed financing late last year, RadioShack had no choice but to agree to obtain the approval of its lenders if it wanted to close more than 200 stores per year. At that rate, it would take more than five years -- which RadioShack simply doesn't have -- to close all the stores it had originally intended.

Naturally, RadioShack went to the table with lenders to ask for permission to speed things up. But as fellow Fool Adam Levine-Weinberg pointed out recently, the company revealed early last month that negotiations to do so failed because of unacceptable terms from those lenders.

As of May 3, 2014, RadioShack was left with total liquidity of $423.7 million, which includes $61.8 million in cash and equivalents, and $361.9 million available under its 2018 credit facility. But RadioShack also drew on the 2018 credit facility after the end of the quarter for "general corporate purposes," and as of yesterday had outstanding borrowings of $35 million there. Given its low cash balances, RadioShack expects it'll need to dip into that credit facility again during the remainder of the year.

So how much longer can RadioShack keep this up? Considering the very real possibility that its losses continue to widen as it's forced to continue operating a large number of money-losing stores, RadioShack could need to identify another source of funding -- or pursue the increasingly attractive option of bankruptcy -- by the end of next year.

Then again, it could always resort to a below-market secondary offering in a last-ditch attempt to stay afloat. In either case, I can safely say I wouldn't want to be a shareholder.

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