As cash and sales fall, RadioShack needs a reboot

RadioShack sales keep dropping, cash is going fast and the stock trades for less than a buck. Heck, one analyst has a target price of zero. So why doesn't RadioShack declare bankruptcy already?

Maybe that won't fix the problem.

American Airlines used Chapter 11 to reset labor costs and end expensive pensions. Energy Future Holdings filed so it could wipe out two-thirds of its debt and crippling interest payments.

But at RadioShack, bankruptcy won't attract more customers or turn losses into profits or slow down Amazon and Best Buy. RadioShack has a tired business model, and thousands of stores must be reinvigorated.

That's a risky, expensive proposition, and lenders are balking. They wouldn't approve RadioShack's plan to close 1,100 stores, more than a quarter of the U.S. chain, because inventory is collateral for company loans.

Last week, Moody's Investors Service said senior lenders wanted "to shore up RadioShack's liquidation value" in case the company goes under.

Have you heard a stronger vote of no confidence? Given a choice between management's plan for the future and preserving inventory for a fire sale, insiders went for the latter.

That reflects "their dim view of RadioShack's turnaround prospects," wrote Moody's senior credit analyst Mickey Chadha.

A stock analyst was blunter: "We think a turnaround is nearly impossible for the company," wrote Scott Tilghman of B. Riley & Co.

Citing "minimal liquidation value," he set a target price of zero for RadioShack stock. It closed at 63 cents a share on Friday.

In North Texas, some high-profile bankruptcies have worked out well. American Airlines' restructuring is the gold standard, leading to a merger with US Airways that swelled its value and paid creditors in full. Six Flags and the Texas Rangers also rebounded strongly after Chapter 11.

EFH, the state's largest power company, is expected to come back better, too.

RadioShack is another story. It seems a closer parallel to Circuit City and Blockbuster, major brands that never recovered.

"For many retailers, bankruptcy is another word for liquidation," said Sander Esserman, a bankruptcy expert at the Dallas law firm Stutzman, Bromberg, Esserman & Plifka.

A boffo holiday season might provide more breathing room. But RadioShack also could keep fading financially and in consumers' minds. The company has created a concept store with an interactive speaker wall and headphone displays; officials said they've generated double-digit sales gains on some products.

But RadioShack has enough money to remodel only about 100 stores this year. With little cash and little time, Tilghman said turnaround hopes rest on crossed fingers, not hard data.

"The trouble is with the top line," he said.

First-quarter revenue was 29 percent lower than three years ago. Same-store sales have fallen in 12 of the past 13 quarters, and declines are getting worse.

In the latest period, the company blamed an industrywide drop in consumer electronics and a soft market for cellphones. But RadioShack's same-store sales fell almost 14 percent while Best Buy declined only 2 percent.

The most ominous metric is cash on hand. RadioShack ended 2009 with $908 million. That was down to $536 million in 2012. In early May, three months ago, RadioShack was down to $62 million.

The company can still borrow against inventory, so Moody's projected that RadioShack would not run out of cash for about a year. Fitch Ratings said a restructuring may be needed sooner in order to stock stores for the holidays. Fitch downgraded RadioShack's rating to "CC," one notch above imminent default.

The New York Stock Exchange warned that RadioShack's stock would be delisted if it continues to trade below $1 a share. CNN reported that "RadioShack's days are numbered," and a Fox News host put the company on "death watch."

RadioShack officials declined to comment, and there must be some frustrations at Fort Worth headquarters. While it reported bad results in early June — and the stock price promptly dropped 10 percent — RadioShack hasn't reported any other negative trends. Yet the stock continued to tumble.

Bloomberg said a hedge fund, BlueCrest Capital Management, is offering to repay lenders so the company can proceed with store closings. But that didn't impress investors, perhaps because RadioShack has been unable to lure a white knight in the past.

RadioShack always rode the roller-coaster of hot products. Cellphones were a huge boon more than a decade ago, and its mobility category accounts for half of sales. But items such as the iPhone and iPad are sold everywhere and have much lower margins.

Smartphones also are cannibalizing sales of other RadioShack staples, such as GPS systems and music players.

"Do they have a business that still makes sense and can make money?" said Esserman, the legal expert. "Is there a way out?"

The clock is ticking.