As cash and sales fall, RadioShack needs a reboot

  • Article by: MITCHELL SCHNURMAN , Dallas Morning News
  • Updated: August 8, 2014 - 8:47 PM

Bankruptcy may not help the ailing retailer, and upgrades may be too expensive.

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Smartphones are wiping out the demand for many of the products carried by RadioShack, from GPS units to music players.

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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.

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