Troubled consumer electronics retailer RadioShack (NYSE:RSH) is reportedly talking with a large shareholder, Standard General LP, about a possible rescue financing package. Without some sort of cash infusion, RadioShack would likely face liquidity issues in the near future.
In my previous article about RadioShack, I explained that the company is unable to slash costs fast enough to make up for falling revenue, and that bankruptcy was becoming increasingly inevitable, especially given that the company is unable to close more than 200 stores per year due to its credit agreements. The reports of an emergency financing deal confirms my opinion that the company will soon be facing severe liquidity issues. The stock has risen substantially over the past couple of days on the news, with the hope that new financing will allow RadioShack to close more unprofitable stores.
The financing package isn't a done deal, and if it falls apart then RadioShack will have few options remaining. Even if the company does secure new financing, there are still other major issues plaguing the company. Competitor Best Buy (NYSE:BBY) recently reported its quarterly results, and it stated that weakness in the consumer electronics industry, particularly in mobile phones, which RadioShack focuses heavily on, would lead to declining comparable store sales over the next two quarters. This bodes poorly for RadioShack, which has already seen its comparable store sales declining in the double-digits recently, and increased liquidity will likely only delay the inevitable.
Disclosure: The author is long BBY.
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