Images

Electronics retailer is short circuiting as it struggles to stay afloat through the holidays.

RadioShack (NYSE:RSHCQ) isn't dead yet, and at around only $1 a share it may be tempting to take a flier on its stock rebounding, but there are a few important things that investors should consider before investing in in the electronics retailer.

After a precarious period last month when it seemed on the verge of closing its doors for good, RadioShack has temporarily stabilized even as it remains on life support. The same market forces that drove Circuit City and Sixth Avenue Electronics to oblivion, and were almost the undoing of Best Buy (NYSE:BBY), are the ones driving RadioShack's troubles today.

Its prognosis isn't good, and plenty can still go wrong with its turnaround attempt, but the possibility of getting back on track is there as well.

The good
RadioShack now has a "chief revitalization officer" tasked with luring customers into its stores and building up its balance sheet. Harry Wilson, who oversaw the restructuring of General Motors (NYSE:GM) and Chrysler when the Treasury Department bailed them out, will join Holly Etlin, who hails from turnaround consultant AlixPartners and was appointed CFO in September, and a number of lawyers and investment bankers who are advising the company.

While too many cooks can spoil the soup, and as was seen with RadioShack's lenders who find it hard to agree on a turnaround plan because of competing interests, the people and groups on board at least have the common goal of ensuring it survives through at least Christmas.

The bad
The reason RadioShack has a new CFO is a result of the last one quitting less than a year into the job. That hardly inspires confidence in a stock when the company's moneyman bolts for greener pastures, but the retailer has been suffering an exodus of talent all year long.

Earlier this year RadioShack's executive vice president of operations quit in April and its EVP for human resources also just bolted for greener pastures. And one might wonder just how committed to the company CEO Joe Magnacca is after agreeing to serve on the board of directors of another failing retailer, American Apparel (NYSEMKT:APP). When he should be focusing all his efforts on saving his own company, he's diverting his attention to keep another one afloat.

That hedge fund Standard General is behind keeping both retailers solvent gives the impression RadioShack's CEO is looking for a soft landing should things not work out.

The ugly
The retailer's debt is a mess. It was forced to resort to stopgap financing from hedge funds to be able to buy inventory for the coming holidays as well as pay for restructuring its debt. It staved off immediate bankruptcy but will cost current shareholders in the form of dilution.

Standard General refinanced a $535 million credit facility in exchange for being able to convert $120 million worth into equity if RadioShack manages to stay afloat through January. Analysts estimate existing stockholders will retain only a 25% stake in the company if it's converted into about 300 million shares.

Another major lender, Salus Capital Partners, now wants to buy up to $465 million worth of the financing Standard General arranged, though before that could be greenlighted it would likely have agree to allow RadioShack to close down around 1,100 stores. It was Salus that blocked the retailers bid to shut all the stores it needed to -- it would only allow around 200 stores to close -- because it feared that turning off the revenue spigot all those stores represented would make it more difficult for it to get paid back.

Although it provides hope for a way forward, it remains a very complicated situation and outside investors will be left with a much smaller stake in any recovery.

Risky business
Obviously a lot of RadioShack's future rests on how it performs this Christmas, but it's going to need more than higher sales stuffed in its stocking to make a go of it. It's transitioning away from reliance on mobile devices, which have been an anchor on its performance, though it continues to rollout its Fix It Here! mobile device repair service.

Images

RadioShack is channeling its maker roots with the development of its Labs division. Photo: RadioShack

It also formed RadioShack Labs, a partnership with PCH International that will bring to its stores products from innovative start-ups and give them a retail and online presence. By providing inventors and entrepreneurs with a platform to market their products could provide an attractive opportunity that harkens to its DIY past.

Still, RadioShack remains in a precarious financial position, one that could just as easily see it go bust as make the U-turn everyone's hoping for.

Follow Rich Duprey's coverage of all the retailing industry's most important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends General Motors. 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.