(Adds hedge fund manager, CEO comments, graphic, financing,
updates stock price)
By Dhanya Skariachan
March 4 RadioShack Corp said it will
close up to 1,100 U.S. stores after reporting a wider quarterly
loss and huge drop in sales during the holidays that raised
concerns about the longer-term prospects for the U.S.
Its shares dropped as much as 20 percent.
The planned closings would leave the Fort Worth, Texas-based
retailer with over 4,000 stores, including more than 900 dealer
franchise locations, it said on Tuesday.
RadioShack's sales have been in free fall since 2010 amid
executive departures, tough competition and an image problem.
Despite its ubiquitous presence, analysts say the U.S. retailer
has not done enough to become a destination for mobile phone
shoppers or younger buyers.
The retailer, which has been losing share to the likes of
Best Buy Co Inc and Amazon.com Inc, reported
its net loss widened to $191.4 million, or $1.90 a share, in the
fourth quarter, from $63.3 million, or 63 cents, a year earlier.
Sales totaled $935.4 million in the quarter covering the
holiday season, down 20.1 percent from $1.17 billion in the
year-ago period. Analysts, on average, looked for sales of $1.12
billion, according to Thomson Reuters I/B/E/S.
Sales at stores open at least a year fell 19 percent in the
fourth quarter on weak customer traffic.
The grim results were not entirely unexpected, considering
the overall weakness in the consumer electronics industry during
the holidays, but many on Wall Street took a grim view of the
The "results were much worse than we anticipated, and cast
serious doubt on RadioShack's long-term viability in our
opinion," BB&T Capital Markets analyst Anthony Chukumba said.
The report also highlighted the mammoth task facing Chief
Executive Officer Joe Magnacca, who took the helm in February
Magnacca, a restructuring expert credited with revamping
Duane Reade drugstores before Walgreen Co bought the
chain, said "the RadioShack turnaround will take time."
(For graphic on RadioShack shares after Magnacca took the
David Tawil, the co-founder of hedge fund Maglan Capital,
said the move to shrink its store base was not a permanent
solution to its problems.
"It should buy them time," said Tawil, a former bankruptcy
attorney and distressed corporate workout specialist. "I don't
think they have a place in the market." Maglan does not own
Its market share has fallen about 20 percent since 2010,
according to data from Euromonitor International.
Tawil said he is concerned about its cash flow levels. "They
can continue to operate but they are in a cash-flow negative
spiral and that doesn't usually reverse itself," Tawil said.
The retailer, which secured new loans heading into the
holidays, ended the fourth quarter with total liquidity of
$554.3 million, including $179.8 million in cash and cash
equivalents and $374.5 million in available credit.
At Dec. 31, its debt totaled $614 million and matured
between 2018 and 2019.
RadioShack peers Best Buy Co Inc and hhgregg Inc
also reported weaker-than-expected sales in what turned
out to be the most heavily discounted holiday shopping season
since the recession.
Magnacca blamed the latest sales weakness on poor shopper
traffic, intense discounting, tepid mobile phone demand and
operational problems such as poor inventory management.
"Mr. Magnacca and the new team deserve a lot of credit for
the changes they are making, but it seems harder and harder for
them to overcome the more significant obstacles," said Janney
Capital Markets analyst David Strasser. He worried that wireless
industry weakness could stall its turnaround.
RadioShack has been working with bankers from Peter J
Solomon Co to boost liquidity, and with AlixPartners on
improving operations. Last October, it obtained $835 million in
financing commitments from a consortium of lenders led by GE
Capital; CIT Corporate Finance; RBS Citizens NA and Salus
Under Magnacca, RadioShack has changed its logo, reduced
store clutter and improved displays. It has also been moving
some products from stores to its website, and carrying more
private-label goods with higher margins.
The retailer recently named a new merchandising chief,
global sourcing chief and chief financial officer. But some
analysts say the efforts are too little, too late.
The stock slid 13.6 percent to $2.35 on the New York Stock
Exchange, but fell as low as $2.19.
(Reporting by Dhanya Skariachan in New York; Editing by Jeffrey