If RadioShack (NASDAQOTH:RSHCQ) does not succeed this holiday season it will likely go out of business.
In September, the struggling electronics retailer announced a $119 million second-quarter loss, and CEO Joseph Magnacca acknowledged the company could run out of money before it completes its turnaround plan:
While we are advancing on many fronts, we may need additional capital in order to complete our work. As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties. We are also working with our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords seeking to create a long-term solution.
RadioShack subsequently reached a deal with a group of investors led by Standard General for emergency funds to get it through the holiday season, Reuters reported. The new investors become the lead lenders on the company's $585 million debt and loaned it another $120 million, which will convert to equity at some future point, according to the news service. The money allows the company to fund its holiday inventory needs, but it comes with conditions that show just how little leeway the chain has left.
In order for the loan to convert into equity rather than add to the company's already huge debt, RadioShack must deliver "changes to a supplier contract, at least $100 million in cash and borrowing capacity by Jan. 15, a financial plan for 2016 meeting certain requirements, and the completion of a rights offering of as much as 700 million shares," Reuters wrote.
That's a daunting task that goes from unlikely to impossible if RadioShack has a lousy fourth quarter and holiday season.
What's the holiday plan?
Like all retailers, RadioShack has big plans for the holiday shopping season, and it plans to kick them off at 8 a.m. Thanksgiving Day. That sounds like a good idea in theory, as it will give the store a jump on retail competitors including Best Buy (NYSE:BBY) (5 p.m.), Wal-Mart (NYSE:WMT) 6 p.m.), Target (NYSE:TGT) (6 p.m.), and Toys R Us (5 p.m.). But, in practice, it's likely to be wasted effort thanks to excess salaries paid out and lots of stores packed with merchandise, but not customers.
RadioShack might persuade people get up early to visit its tiny stores if it offered tremendous deals. Its offers, however, mostly center around products that aren't likely to have people showing up early
The company's best deal for name value/price might be its offer of $100 off Beats Solo HD Drenched in Color headphones. That brings the price of the headphones down to $69.99, but the deal comes from "instant savings and mail-in rebate," an extra step many will want to avoid. The other deals highlighted in a press release are a grab bag of off-brands and "I'm not sure how much that costs anyways" items, including:
- The Nobis 7" 8GB Quad-Core Tablet with matching case for $49.99 (save 50%)
- SanDisk 16GB USB Flash Drive, priced at $4.99 (reg. $29.99)
- Save 50% on JBL J55a On-ear Headphones, priced at $29.99 (reg.$59.99)
- Get 50% off Incipio OFFGRID Backup Battery Case for iPhone 5/5s, priced at only $39.99
- RC Surveyor Drone with Video Camera, priced at only $34.99 (reg. $69.99)
Magnacca has announced some interesting concepts for reimagining RadioShack, but, if he needs a successful holiday to implement them, he's not likely to get that far. The chain, despite some rebranding efforts, is still known to too many consumers as the place to buy an HDMI cable if you really can't wait until Amazon sends one at a much cheaper price.
Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. He used to really like browsing in Radio Shack but rarely bought anything there. 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.