RadioShack closes near all-time low, analyst says "the ship is sinking"


RadioShack (RSH) has lost almost half its market cap since the beginning of the year, plunging 9.5% today and coming within pennies of its all-time closing low after reneging on its plan to close up to 1,100 stores.

RSH said its credit agreement only allows it to close up to 200 stores per year and up to 600 over the life of its credit agreement, prompting Wedbush analyst Michael Pachter to respond that "the creditors clearly are in control of the ship, and in our view, the ship is sinking."

Pachter sees management and creditors trying to compromise on a smaller number of store closings; otherwise, RSH could declare bankruptcy, holding off the creditors and allowing it to close as many stores as it wants.

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Comments (58)
  • rjj1960
    , contributor
    Comments (1470) | Send Message
     
    Just walk by any store in a mall, always dead.
    9 May 2014, 07:29 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1002) | Send Message
     
    As far as I heard, malls themselves weren't doing so hot, either... Maybe RSH needs to start locating strategically near CMG...
    9 May 2014, 07:31 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    How is 3.4 billion in revenues not doing so hot? Are you the same person who bought athenahealthcare at 200 a share bc it had 500m in revenues?
    10 May 2014, 02:54 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1002) | Send Message
     
    Nope. But that doesn't mean I'm going to by RSH, either. I prefer profitable companies with earnings visibility trading at reasonable valuations.
    10 May 2014, 02:59 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    Why the obsession with revenue? They make no money, who cares about sales if they result in a net loss?
    10 May 2014, 03:02 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1002) | Send Message
     
    "Who cares about sales if they result in a net loss?"

     

    Jeff Bezos, amirite?
    10 May 2014, 03:08 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    "Jeff Bezos, amirite?"

     

    Fair. But Amazon's sales are growing as opposed to RadioShack, which has seen a sales decline of about 20% over the past three fiscal years.
    10 May 2014, 03:14 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    John, why do you care so much about RSH doing poorly? If my sales are shrinking at 20% why would you suddenly value my company at 4% of its revenues. Value it at an .80. Or even .50. That kind of looks like RSH could be 12x - 20x undervalued.

     

    Jeff=shorting.

     

    Me=objective observer interested in possibly playing this for a 500% upswing.

     

    RSH has the same price/sales ratio as FNMA.
    10 May 2014, 03:25 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    It sounds like doc that if they were to close a third of their stores and kept the ones making money open they'd have a short at being profitable. Its a bet. But one I see with a potential upswing. If that means cutting profits by 30-50% I still see a company worth 1.5b to 2b.

     

    I think this is a gamble but one too enticing to overlook
    10 May 2014, 03:29 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    I'm an objective observer just like you, just one who's opinion opposes yours. I won't buy nor will I short. This is an interesting discussion which is why I continue to write.

     

    The question you need answered is how many stores contribute to defraying corporate G&A, interest, etc. Are they profitable on an individual basis? And then how much SG&A can the company cut? They don't have much time and this covenant issue limits them. If you buy, maybe you will make money, but you might lose your entire investment.
    10 May 2014, 03:43 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1002) | Send Message
     
    Matt, I haven't done any DD into RSH yet, but at a glance it looks like a risky long. They have revenues without earnings, haven't generated positive EPS in 2 years, have declining revenues overall for the past decade (-3.4% CAGR) with relatively increased operating expenses as a proportion of revenue (-2.1% CAGR), growing long-term debt, and the only option that seems viable (closing stores) isn't allowed to them by the covenant signed with their creditors. Closing a third of their stores isn't an option, at least not right away, or at least not without declaring bankruptcy. It's not even a play as a net-net. It's a dying business without significant prospects and a lot of debt. As JC says, you could make money, or you could lose all of it. I guess I just don't see the upside.

     

    @JC: 'Twas a joke, my friend. There are light-years of difference between RSH and AMZN. Though whether or not AMZN will be able to leverage increased sales into significant earnings is another debate for another time.
    10 May 2014, 04:46 PM Reply Like
  • Energysystems
    , contributor
    Comments (2038) | Send Message
     
    "If that means cutting profits by 30-50%..."

     

    Revenue =/= Profit
    10 May 2014, 05:04 PM Reply Like
  • spondrei
    , contributor
    Comments (78) | Send Message
     
    Matthew, I am basically in your corner (praying) because i have just played RSH with Jan 2016 $3 and $3.50 Call options. Bought 100 of the 2016 $3.50's at .07 cents = $188 including commish and 150 of the 2016 $3's at .05 cents = $2.69.

     

    All i'm hoping for is 1 good analyst review or 1 day where the options pop .10 cents. I don't think that is too much to ask for over the next 1.5 years. LOL
    11 May 2014, 09:30 AM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    "cut revenues" excuse my french.

     

    actually, that is a beautiful play spondrei. probably a lot safer as a bet.

     

    declining sales doesn't mean the company stopped making billions....

     

    "(-3.4% CAGR) with relatively increased operating expenses as a proportion of revenue (-2.1% CAGR)" and the stock has been devalued by -96%? I'm living in lalaland.

     

    I'm a contrarian. Radioshack has $177 million cash on had. they could buy back the entire company if they wanted. this is just another great example of how investors overreact to market conditions. silly, silly, silly.
    11 May 2014, 06:16 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    Yes, but they have $626 million in long-term debt. $300 million matures in 2018 so they do have some time, but still. If you bought the company you would be purchasing a company shackled by its creditors. Even if they could close the 1000 or so stores, do you even know if they have others that are profitable enough to survive?
    11 May 2014, 09:04 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1002) | Send Message
     
    There's a reason why some people look at EV/EBITDA. Especially, you know, the EV part. And the EBITDA part. If the company's 10-K can't convince you that they are, in fact, not turning a profit, then I don't think I can.

     

    As a matter of fact, RadioShack could NOT afford to buy back the company right now. It's got way too much debt. And the debt that it has won't allow it to close stores fast enough (see article). Its current EV is over $550 million. Your focus on revenues and cash on hand is distracting you from their profoundly desperate debt situation. The company is not even worth it sold off for pieces.

     

    I understand it may suck to acknowledge the painfully obvious, but revenues do not a prior imply the existence of profits. There are such things as COGS and SGA.
    11 May 2014, 09:47 PM Reply Like
  • Energysystems
    , contributor
    Comments (2038) | Send Message
     
    "declining sales doesn't mean the company stopped making billions"

     

    $RSH isn't making billions.
    12 May 2014, 07:54 AM Reply Like
  • Van Hyder
    , contributor
    Comments (172) | Send Message
     
    Amazon and Ebay kill another one. There's more of this to come.
    9 May 2014, 08:00 PM Reply Like
  • chopchop0
    , contributor
    Comments (5065) | Send Message
     
    Don't forget WMT.
    10 May 2014, 01:55 AM Reply Like
  • Bouchart
    , contributor
    Comments (1076) | Send Message
     
    He's dead, Jim.
    9 May 2014, 08:03 PM Reply Like
  • deercreekvols
    , contributor
    Comments (9391) | Send Message
     
    Where will I get my Tandy computer, over-priced batteries, and cheap remote controlled dune buggy?
    9 May 2014, 09:11 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (4338) | Send Message
     
    eBay. Free shipping from China, usually.
    9 May 2014, 09:13 PM Reply Like
  • MrVincent
    , contributor
    Comments (257) | Send Message
     
    My first computer was a TRS 80. Those were the days. RS and companies like Sears etc, should have died a long time ago.
    10 May 2014, 09:49 AM Reply Like
  • edsanville
    , contributor
    Comments (73) | Send Message
     
    Radio Shack needs to partner up with Kmart, Blackberry, and Sears to form the Ultimate worthless company with no future.
    9 May 2014, 09:57 PM Reply Like
  • SoCalNative+(RIP)
    , contributor
    Comments (651) | Send Message
     
    Brutal but, true.
    9 May 2014, 09:59 PM Reply Like
  • Dallas Salazar
    , contributor
    Comments (2677) | Send Message
     
    Just spit coffee all over my tablet. Freaking HILAR.
    10 May 2014, 10:07 AM Reply Like
  • SoCalNative+(RIP)
    , contributor
    Comments (651) | Send Message
     
    Every day $RSH is in business is a day I'm amazed.
    9 May 2014, 10:00 PM Reply Like
  • Dallas Salazar
    , contributor
    Comments (2677) | Send Message
     
    Amen, brother.
    10 May 2014, 10:07 AM Reply Like
  • Mking30
    , contributor
    Comments (142) | Send Message
     
    wouldnt touch this with whatever.... but.... I dont understand how ther market cap is rolling around only a 150? What... they dont own anything? Fronted all their "parts" and rent all ther shops>?
    10 May 2014, 12:05 AM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    They had 3.4 billon in revenues. The math isn't making sense Net sales and operating revenues

     

    That's p/sales of .04. If RSH sticks around, this will be one hell of a long play. I might open a position at an all time low..
    10 May 2014, 07:15 AM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    If closing 1000 stores would put them in the green and pay off creditors I could see the company getting a better valuation

     

    You'd cut revenues down by 25%. But for the sake of argument let's say cut revenues by 30%. That's still 2 billion revenues and a company trading at 133m seems grossly undervalued. I don't care that the stores look empty. If they are making money that's all I'm concerned with. If they just need to close so,e stores, I'll take it.

     

    On a 1:1 ratio that's a 17x upside.

     

    They company also has 1.74 cash per share.
    10 May 2014, 07:44 AM Reply Like
  • Energysystems
    , contributor
    Comments (2038) | Send Message
     
    Having 2-3B in revenues doesn't mean a company is making money.
    10 May 2014, 11:51 AM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    Oh really? So I suppose 3.4 billion is fairy dust? So does that mean a company like SBAC is also worth zero? They only have 1.3b in revs but are valued 11b even though haven't had a positive quarter in years
    10 May 2014, 02:50 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    Maybe SBAC is overvalued too. I know nothing about them, but pointing to a declining sales number and saying that is why they are a value play makes no sense.
    10 May 2014, 03:05 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    If they control their losses by closing stores, this is a value play. Its risky but upside is pretty strong. All it takes is just one profitable quarter and this stock will trade at $20. Will it do it? I don't know. I'll put a small amount and see.
    10 May 2014, 03:31 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    But one profitable quarter is so hard for a company in their position. The creditors are in control and they don't have the flexibility to make the necessary adjustments. They have $1.74 in cash per share, but look at the whole story. They have $5.96 per share in debt with weak and declining cash flow.
    10 May 2014, 04:20 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    Looking at the whole specialty retail sector, it seems that every company is undervalued. this is very, very interesting.
    11 May 2014, 06:26 PM Reply Like
  • The Investment Doctor
    , contributor
    Comments (2574) | Send Message
     
    Buy them all, buddy. Buy them all.
    11 May 2014, 06:27 PM Reply Like
  • chris_dress
    , contributor
    Comments (339) | Send Message
     
    don't forget the debt
    11 May 2014, 07:27 PM Reply Like
  • Dr. Kris
    , contributor
    Comments (373) | Send Message
     
    I was just in a RadioShack today (no, really!) and was truly impressed, or should I say amazed? with the new store remodel. It was bright and clean with very contemporary lines, and brimming with nicely packaged and attractive products. I couldn't believe this was the same store of yore.

     

    Before you diss them, perhaps you should set foot in a newly designed store. You might like what you see. I'm not sure I'd be shorting their stock right now...although a merger with Best Buy wouldn't be a bad thing...
    10 May 2014, 01:17 AM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    But I can order anything RadioShack has and more for less money, and from the comfort of my own home.
    10 May 2014, 02:42 AM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
     
    And I can drive 20 minutes, check out their unique collection of products that I can't find in any one place elsewhere, hold the products in my hands, get advice that's usually very helpful, get new ideas and see products I never knew where available, and be back home with products in hand in less than an hour. I don't own RSH, but I see them as unique amidst an otherwise homogenous retail landscape. I hope they make it.
    10 May 2014, 02:55 AM Reply Like
  • Andreas Hopf
    , contributor
    Comments (17700) | Send Message
     
    Consumers in the Americas and Europe (and probably anywhere else) have been educated to avoid personal contact, discovery and reality and let social media, online shops and internet services handle most of their errands.

     

    I hardly ever see anyone using their phone for voice calls these days.

     

    Maybe Radio Shack (what's a radio to the young ones?) could have shrunk and attached itself to the ever expanding world of DIYers, fabbers and the like?

     

    But I rather believe eventually, the Amazon will flow through even in the most remote location, all the way to the Ebay estuary.
    10 May 2014, 05:43 AM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    I'm very perplexed. Why would anyone listen to what someone thinks about the profitability of a company when you could look at a 10-k. I'm not an investor but its hard to argue with a market cap of 130m and revenues of 3.4 billion.
    10 May 2014, 07:20 AM Reply Like
  • BIG_BEN
    , contributor
    Comments (166) | Send Message
     
    I haven't been to a RSH recently but whenever I go in to a Best Buy to get something, I usually regret it. The product selection is bad and whenever I hear one of their experts open their mouth, terrible advice usually follows. I usually go back home in defeat and order the product from newegg or amazon. I feel sorry for the non tech-savvy customers who go in there and get ripped off by their salesmen.
    10 May 2014, 08:01 AM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    Don't forget FY13 operating cash flow of $35.8 million. Who cares how much they sell, their not generating any cash, they have 6x as much funded debt as they do cash, and now as we can see their credit agreements are limiting the company's ability to downsize and deleverage. Their finished.
    10 May 2014, 02:20 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    Amen.
    10 May 2014, 02:21 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    But the web has a more unique selection and with a few clicks of the mouse I can see customer reviews. Not to mention if I don't like the product I can mail it right back and get a refund. In response to Andreas, this isn't about me not wanting to interact with people. Its about saving time and money so I can interact with the people I want to.
    10 May 2014, 02:29 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    I don't care what you think. I only care that the company had 3.4 billion in revenues. How much did you make last year?
    10 May 2014, 02:52 PM Reply Like
  • JohnCandy
    , contributor
    Comments (118) | Send Message
     
    I made at least $1 and if you look at RadioShack's income statement for FY13, I came out ahead of them. You don't care what I think and that's completely fine, but I'm going to challenge your view that a high, unprofitable sales number has any meaning.
    10 May 2014, 03:08 PM Reply Like
  • Matthew Finston
    , contributor
    Comments (969) | Send Message
     
    It means what the company could be worth to buy. How much are you willing to pay for 3.4billion in revenues? $133m. Ummmm yeah? I'd fix the company close stores, reduce any unnecessary spending and enjoy my 2b in revenues. Yes I'll reduce profits but I just paid 133m for 2b. And even if it keeps shrinking it will take 10 yrs before the company makes less than what I paid for it.
    10 May 2014, 03:36 PM Reply Like
  • Energysystems
    , contributor
    Comments (2038) | Send Message
     
    What profits? Revenue does not equal profit.
    10 May 2014, 05:07 PM Reply Like
  • ht7896
    , contributor
    Comments (4) | Send Message
     
    Quite frankly for the shape that their business is in, it's not even worth a place in my portfolio. Since you focus on sales so much, lets do a quick little analysis on the financial health of RSH:
    (all in $/share)
    Sales- 34.00
    Total Assets-16.00
    COGS- (22.50)
    SGA- (14.00)
    Total Debt- (6.00)
    Current Liabilities- (5.75)

     

    Total Value Per Share- 1.75

     

    Based on the math, I think it's worth maybe 1.75 if they liquidate today, factor in a -10% average sales growth, and you're lucky to get 1.25

     

    Just my thoughts, best of luck to you
    10 May 2014, 08:12 PM Reply Like
  • The Investment Doctor
    , contributor
    Comments (2574) | Send Message
     
    Matthew, do you have any idea what you're talking about? If I'd buy 1M newspapers at $1 and sell them at $0.90, I'd have $900k in revenue. Does that mean I am running a solid business? Don't think so.

     

    But hey, If you'd like to buy my $900k revenue doing business for $100K, please send me the cheque and I sign the buyout agreement right now.
    11 May 2014, 08:53 AM Reply Like
  • chris_dress
    , contributor
    Comments (339) | Send Message
     
    dont forget the debt
    11 May 2014, 07:28 PM Reply Like
  • june1234
    , contributor
    Comments (4249) | Send Message
     
    Anyone remember the chain formerly known as Circuit City. Best Buy, Blood Bath and beyond, Sears one by one big box retailer is going by the wayside
    10 May 2014, 04:05 AM Reply Like
  • U2A Ventures
    , contributor
    Comments (329) | Send Message
     
    I hold RSH puts ... that place is a crap hole, run by terrible local/regional staff. The store remodel and concept change is too little too late. The only thing they have is their name, which is what was said about Circuit City as well, but the name doesnt mean much anymore. RSH might live on as a store-within-a-store concept at Walmart or something alike.... the name holds some sort of credibility and historical context
    10 May 2014, 06:56 PM Reply Like
  • Seth Walters
    , contributor
    Comments (675) | Send Message
     
    In store retail is a blatantly inferior distribution channel for almost everything except fresh food and things that you have to see if they fit (clothes and stuff). The better distribution channel is going to win out in the long run and stocks like this will be zeroes.
    10 May 2014, 10:25 PM Reply Like
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