RadioShack (NYSE:RSH) is doomed. It was an amazing store that I loved to go to back in the 80s. The catalog would come in the mail and I'd look through it for hours, highlight things that were only available from RadioShack, and write down questions for the well-informed staff. Fast forward to the present and my only thought on RadioShack is, "Do I have to go there?" since it means overpriced gear, poorly trained and underpaid staff, and being pressed about my cell phone and zip code.
As a current test, I decided to see if things changed for the better or worse. I started with a visit to their website since consumers are shifting to a lot of online purchases this holiday season. I needed to buy a GPS anyway and checked the current sales at RadioShack. The Garmin Nuvi 40 was on sale for $94.99 as an online only product. I did a quick search to Amazon (NASDAQ:AMZN) of course and found the same thing for $81.67 with faster shipping. It looks like RadioShack lost that competition by a mile. How about some nice HDMI cables? This time a 2-pack was available in store for $24.99 RadioShack brand but Amazon had a 2-pack Amazon Basics set for only $9.99 with next day shipping for an extra $3.99. Do I really need those RadioShack cables for an extra $11.01 plus gas and shopping time or can I wait a day for the Amazon order? Almost everything a consumer needs or wants is available from a non-Radio Shack dealer at a lower price with less aggravation. Next, I visited a local RadioShack but the thrill was still gone and I ran out when I was asked about my cell phone. Is it any wonder that RadioShack had same store Q3 results below 95% of all other U.S. specialty retailers?
RadioShack is in very poor shape financially. The acid-test ratio is an indicator of a firm's ability to cover immediate liabilities without selling inventory. It is calculated by:
RadioShack barely passes the test with a value of 1.03 using financials from the 3Q 2013 quarterly report. Companies with a ratio less than 1 may have trouble paying current liabilities and should be viewed with caution.
Morningstar Inc., doesn't see things turning around for the better, even with the new financing, since RadioShack is burning cash at an alarming rate. Analysts at Bloomberg believe RadioShack will burn over $150 million in cash during the next 12 months. James Goldstein, a CreditSights analyst, uses wording such as, "last chance" and "deep dive" to describe the challenges facing the company.
If RadioShack could be immediately liquidated then it might be worth more than the current stock price. Since liquidation isn't an instantaneous option, investors need to look at future earnings vs. future costs. RadioShack's Q3 results included a 10% decline in sales which resulted in negative EBITDA (earnings before interest, taxes, depreciation and amortization). EBITDA is a good way to evaluate profitability or the lack of profitability. It came into widespread use during the 1980s as an indicator of a company's ability to service their debt. RadioShack has more liquidity, due to new financing, but it also has close to double the borrowing costs.
RadioShack is a store trying to survive at the end of an era. The company had a chance to change but it was too little too late. It has declining sales, even after a revamp, and very poor finances. The days of my excitement of going to RadioShack are over. I would rather go to a competitor, such as Best Buy (NYSE:BBY), or shop online. I'm sure that any increase in the stock price will be met with short sellers ready to strike until the company goes bankrupt.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.