RadioShack faces tough choices as troubles mount

Robert Francis

RadioShack plans to close up to 1,100 stores in the United States as troubles continue to grow at the Fort Worth-based electronics retailer. The retailer made the announcement March 4 while reporting a wider quarterly loss after a disappointing holiday season. CEO Joseph Magnacca said the closures would leave RadioShack with more than 4,000 U.S. stores, including more than 900 dealer franchise locations. The company didn’t immediately identify which stores will be closed or how many jobs will be affected.

The closures represent just the latest setback for RadioShack, which is fighting to update its image and compete with the rise of online and discount retailers. In addition to slashing costs and shuffling management, for instance, RadioShack has been renovating its stores with a more modern look. “Since I joined the company, it has been clear we need to change the conversation about RadioShack,” Magnacca said during the call with analysts. He pointed to the success of the company’s Super Bowl ad as an example of “exactly the kind of disruption we needed.” The spot poked fun at the company’s outdated image by showing characters from the 1980s including Alf, Chuckie and Teen Wolf ransacking its store. Magnacca also outlined various efforts the company is taking, such as revamping its product mix and working to identify trends in electronics earlier. Still, he conceded that the turnaround push is taking longer than expected because the company was “weak” in many areas and “just broken” in others. The latest quarter’s performance was also hurt by a slowdown in customer traffic and increased promotional activity. “We exceeded our organization’s capabilities by trying to do too much too soon,” said the CEO, who took over last year.

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Key indicator Sales at stores that had been open at least a year – a key indicator of a retailer’s health – sank 19 percent. The company said that the stores targeted for closures are being selected based on location, area demographics, lease duration and financial performance. The developments show that Magnacca hasn’t yet succeeded in rejuvenating the almost-century-old chain, which once sold gear to shipboard radio officers, prompting the company’s name. RadioShack has been retooling stores in response to competition from online rivals such as In a research note from David Strasser at Janney Montgomery Scott LLC, he said that the RadioShack results “highlight a company with few options.” Strasser compared the earning release with that of Circuit City prior to its filing for bankruptcy in 2008. “The [RadioShack] concept stores are great, but simply not enough. A handful of those stores will not warrant survival of the whole company in our humble opinion,” according to the research note. Strasser noted that the new management team has made some significant changes, but that “it seems harder and harder for them to overcome the more significant obstacles.” For instance, Strasser said, the slowdown in the wireless industry will have a significant impact.

4Q RadioShack’s fourth-quarter net loss widened to $191.4 million, marking the eighth consecutive quarterly loss, up from $63.3 million a year earlier. Revenue declined to $935.4 million from $1.17 billion. Wall Street was looking for higher revenue of $1.12 billion. David Schick, an analyst with Stifel Financial in Baltimore, anticipated a 3 percent decline in sales at stores open at least a year, far less than the 19 percent reported. RadioShack’s “strategic initiatives will take time and expense,” Schick said in a note to clients. Still, “closing stores is a positive,” and the chain may be able to regain some sales online, he said. “The mobile phones category was very weak, and mall traffic is very weak,” Schick, who has a hold rating on the shares, said in a phone interview. “Their biggest category is wireless. The majority of folks have their mobile phones. We are past adoption.” The company had problems keeping some merchandise in stock during the quarter while trying to clear out other goods, Magnacca said on the conference call March 4. RadioShack reported a full-year loss of $400.2 million, or $3.97 per share. In the prior year it lost $139.4 million, or $1.39 per share. Its adjusted loss was $3.04 per share. Annual revenue declined 10 percent to $3.43 billion from $3.83 billion. “The company is burning through cash,” Scott Tilghman, an analyst at B. Riley & Co., said on Bloomberg Radio. “We don’t see the fundamentals moving out of the red for at least the foreseeable future.”

Selling short A growing number of investors are betting against the stock. Shares sold short now account for 28 percent of the total, up from a one-year low of 18 percent on June 28, according to Markit, a London-based provider of financial information services. The company said in a filing with the U.S. Securities and Exchange Commission that its liquidity was sufficient to meet obligations through the year. RadioShack, which obtained $835 million in new loans in the quarter, said it had liquidity of $554.3 million as of Dec. 31. In response to a question, Chief Financial Officer John Feray said the company hadn’t considered a prepackaged bankruptcy that could help it exit leases. The store-closing plan requires the consent of the lenders, which include GE Capital, Corporate Retail Finance and Salus Capital Partners. RadioShack said it hired A&G Realty Partners of Melville, N.Y., to conduct closings. The chain has reduced letters of credit or collateralized letters of credit guaranteeing payments to vendors from about $121 million at the end of the fourth quarter to about $67 million now, Feray said on the call. Magnacca, a former Walgreen drugstore chain executive, has hired a new team of managers and in February brought in Dollar General executive Feray as CFO. Magnacca has pinned the company’s turnaround on five projects, including boosting efficiency, cutting costs and developing new merchandise. Magnacca talked about plans to improve the mix of products by working with inventors, business incubators and vendors. A better assortment will be “clearly evident” in stores this year, he said. “RadioShack has been a concept of convenience,” said analyst Tilghman, who recommends selling the shares. “It’s not really a destination location.” RadioShack’s roots reach back almost a century, to the founding of Hinckley-Tandy Leather in Texas in 1919 and, two years later, to a RadioShack store and mail-order business in Boston that sold gear to shipboard radio officers, according to the company’s website. Tandy bought RadioShack in 1963, and the company changed its name to RadioShack in 2000. The retailer was the first to sell a mass-produced personal computer, in 1977, and in the 1980s became among the earliest merchants to offer mobile phones. – This report contains material from the Associated Press and Bloomberg