On Tuesday, shares of RadioShack (RSHCQ) plunged by as much as 25% after the company reported yet another terrible quarterly earnings report.
To be sure, back in July, The Shack reported a quarterly loss more than double what analysts were expecting. However, some hope remained, considering that the struggling electronics retailer actually beat analysts' revenue expectations in the second quarter.
This time around, however, there was no such luck, as RadioShack lost $118 million, or $1.11 per share, as quarterly sales crumbled 10.4%, to $805 million. For reference, analysts on average were expecting a loss of just $0.35 per share, on $891.73 million in sales.
Based on the unsurprising slew of apocalyptic headlines that followed this week's report, I can't blame investors for wondering just how much longer RadioShack can keep this up. After all, they can't keep losing money like this forever, so something must give... right?
But if you think RadioShack is on the verge of bankruptcy, think again.
The Shack isn't dead just yet...
Remember, RadioShack also ended the quarter with a total of $613 million in liquidity, including $316.4 million in cash, and $296.2 million available in their revolving credit facility. In addition, RadioShack's total debt was $499 million as of Sept. 30, consisting of notes that mature between 2016 and 2019.
What's more, and much to many investors' surprise, RadioShack was able to secure new debt financing from a consortium of lenders totaling $835 million. With this money, the company primarily plans to refinance debt, including its existing $450 million credit facility as well as $150 million in term loans. As a result, RadioShack expects the new financing will provide roughly $175 million in incremental liquidity when the deal closes sometime in the fourth quarter.
When that happens, RadioShack will have nearly $800 million in liquidity at its disposal, which should give the company at least a few more quarters to turn itself around. Even then, if RadioShack is still hemorrhaging money a few quarters from now, it could always pull a J.C. Penney-esque move and resort to a dilutive, below-market stock offering in a last-ditch effort to keep itself afloat.
...but that still doesn't mean you should buy
To its credit, management did assert that inventory clean-up efforts for the holiday season was the primary reason for this quarter's miss. Specifically, CEO Joseph Magnacca stated:
We can't fix our business without fixing our product assortment. It was important for us to take this decisive action to allow us to reset the product mix in time for holiday and in order to pursue our longer-term repositioning and turnaround.
As a result, it will be crucial for RadioShack to show improvement in next quarter's results to prove to investors it has what it takes to, once again, achieve sustained profitability.
But don't get me wrong: RadioShack's business is still a mess, and it's hard to put aside the fact that comparable-store sales also fell 8.4%. Sure, it's possible its newly cleaned stores will help turn comps positive going forward, but the question still remains as to whether RadioShack will be able to successfully differentiate itself over the long run by relying so heavily on items like prepaid mobile phones, portable speakers, and cellphone accessories.
So, while RadioShack won't be going away anytime soon, until it can definitively prove the skeptics wrong and stop the bleeding, I think RadioShack investors are still in for plenty more pain going forward.
