RadioShack Corp RSH.N reported a wider-than-expected quarterly loss and announced the departure of its financial chief on Tuesday, stepping up the pressure on the struggling electronics retailer just months before the holiday selling season.
The results demonstrated the mammoth task recently appointed CEO Joe Magnacca faces in engineering a turnaround. Magnacca, who took the helm in February, said on Tuesday he expected a turnaround to take several quarters. Its shares fell 5 percent.
"We are struggling to find any silver lining in the results," BB&T Capital Markets analyst Anthony Chukumba said, questioning if the company has the time left that the new CEO believes it will take to execute his turnaround strategy.
Sales at the electronics chain have been in free-fall for more than a year amid executive departures, cutthroat competition and an image problem. Despite its ubiquitous presence in the United States, analysts say the once-iconic retailer has not done enough to transform itself into a destination for mobile phone buyers or to become sufficiently hip to woo younger shoppers.
Several days ago, reports surfaced that the struggling retailer was talking to bankers about refinancing its debt. On Tuesday, RadioShack said it would work with AlixPartners and investment banking firm Peter J. Solomon on the turnaround.
"Looking ahead, we expect the turnaround to take several quarters, and during that time our results may vary from quarter to quarter as we make strategic changes to improve our long-term financial performance," Magnacca said.
The new interim financial chief is Holly Etlin, a managing director at turnaround firm AlixPartners. Etlin succeeds Dorvin Lively, who resigned to become chief financial officer at Planet Fitness. RadioShack is looking for a permanent CFO.
Janney Capital Markets analyst David Strasser said he was not surprised with Lively's departure as he had been passed over for the CEO job when Magnacca was hired.
"The timing, however, is less than ideal, as they are making big balance sheet decisions imminently," Strasser said.
DISCOUNTS EAT INTO MARGINS
The retailer took more discounts to get rid of "unproductive" inventory in the second quarter, a move that boosted sales at established stores but squeezed margins.
Its net loss widened to $53.1 million, or 53 cents a share, from $21 million, or 21 cents a share, a year earlier. Analysts, on average, expected a loss of 24 cents a share, according to Thomson Reuters I/B/E/S.
Sales fell 0.5 percent to $845 million, hurt by store closures. Same-store sales rose 1.3 percent in the quarter, its first quarterly increase since 2010. Gross margin was 37.2 percent of net sales, versus 40.1 percent a year earlier.
Strasser considered the quarter "a modest success" as RadioShack managed to convert $100 million of inventory to cash sequentially.
At the end of the quarter, the company had liquidity of $818 million, including cash and cash equivalents of $432 million and $386 million of available credit. The company's total debt was $713 million.
RadioShack said it plans to pay down the remaining $214 million of its convertible notes maturing in 2013 with cash.
(Reporting by Dhanya Skariachan; Editing by Jeffrey Benkoe, John Wallace and Andrew Hay)