RadioShack Corporation Could Be Bankrupt Next Year

RadioShack's not dead yet, but its latest quarterly results show it's quickly running out of time and money.

Jun 10, 2014 at 4:44PM

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

Radioshack

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.

Top dividend stocks for the next decade
In the meantime, there's a better way to put your money to work. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Steve Symington 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers