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Why RadioShack Is In Dire Straits

Summary

Renowned consumer electronics retailer and operator of the retail website of the same name RadioShack Corporation has seen a plunge in its earnings over the last 5 years.

Losses in Q2 2015 grew by an alarming 22% as compared to the year ago quarter. Diluted loss per share for the company amounted to $1.35.

RadioShack Corporation is currently in dire need of a turnaround for the purpose of which they have brought former US Treasury Department advisor Harry Wilson.

RadioShack is aiming to add momentum to its restructuring plan and revamp its business model so as to focus on its core strengths and divest from inefficient operations.

Investors will be better off by avoiding buying into the company’s stock as they do not stand to make any short term gains from the company.

Renowned consumer electronics retailer and operator of the popular retail website of the same name, RadioShack Corporation, has seen a considerable plunge in its earnings over the course of the last 5 years. The company's growth has been severely impeded and both top-lines as well as bottom-lines have worsened significantly. The company is faced with severe financial problems and has been on the verge of bankruptcy, almost going bankrupt a couple of times in the process. If the trend in RadioShack's shares is studied, it can be inferred with a great degree of confidence that share prices have not recovered since the global financial crisis of 2007. The electronics retailer's share prices reached a decade high mark of $34.85 in 2007 and since then have fallen to as low as $0.55 earlier this year. Investors are losing their confidence as the company's business model has not allowed it to withstand the unfavorable market conditions it faced earlier nor gain from the benefits of a recovering economy.

Statistical Overview of RadioShack's last reported Financial Performance

RadioShack Corporation last reported its earnings at 11th September 2014. The company reported its financial performance for the second quarter of its fiscal year 2015. For the quarter, RadioShack reported revenues of $674 million, down a little over 16% from $805 million in the year ago quarter. Gross profits for the company fell slightly by around $5 million and were reported at $237 million. RadioShack's operating expenses for the quarter amounted to $793 million, as a result of which the company suffered from an operating loss of $119 million; up by a million from the year ago quarter's operating loss. Bottom line growth worsened further as the consumer electronics retailer suffered from net losses from continuing operations of $137.4 million during the quarter. Losses grew by an alarming 22% as compared to the year ago quarter. Diluted loss per share for the company amounted to $1.35 as compared to $1.11 per share in the year ago quarter. Moreover, the company remained highly in debt with long term debt figures standing at $657 million at the end of the quarter. The company has exhausted a significant proportion of its loan-able funds as well and had $152 million available for borrowing at the end of the quarter. Same store sales for RadioShack decreased 20% during the quarter as its outlets continued their poor performance; 200 stores were shut down in June alone. Moreover, the retailer's liquidity position also worsened significantly over the course of the quarter as it recorded net cash outflows of $125 million for the first half of its fiscal year 2015.

Other Developments and Future Outlook for RadioShack

RadioShack Corporation is currently in dire need of a turnaround, for the purpose of which they have brought former US Treasury Department advisor Harry Wilson on board in order to seek a direction to look towards as the company engages in turnaround efforts. RadioShack has already engaged in a rigorous operational restructuring program, under which it has closed a large number of stores and outlets. The hiring is an attempt to avoid potential bankruptcy which the company is constantly being pushed into due to poor sales growth. RadioShack is aiming to add momentum to its restructuring plan and revamp its business model so as to focus on its core strengths and divest from inefficient operations. The online market could potentially be the major turning point that RadioShack is searching for. The company has to stick to its strengths in order to allow it to thrive. However, the company was dealt with a huge blow prior to its earnings announcement. A potential $250 million loan has been taken off the table by Salus Capital, which is a major lender to RadioShack, as the company is alleged to have violated key covenants. The company's financial results for the third quarter of 2015 are expected to show losses of $1.01 per share on expected revenues of $718.40 million. Analysts are expecting figures to improve somewhat as compared to the second quarter results, but it is important to note that the company is still not expected to become profitable.

Conclusion

The operator of radioshack.com, RadioShack Corporation is currently in a crisis situation with sales growth worsening consistently and no avenues of growth in sight. The company has delivered poor financial performances over the course of the year and has fallen below profitable levels. Investor confidence has been at a low, with share prices trading even below the $1 mark through much of the year. The company has made efforts to somehow pull off a turnaround and has rigorous restructuring plans in sight. However, the cancellation of its loan from Salus Capital has dealt a blow to the company's rebuilding efforts. There has also been a change in financial leadership with former US Treasury advisor Harry Wilson taking charge of turnaround efforts. Investors will be much better off by avoiding buying into the company's stock altogether as they do not stand to make any short term gains from RadioShack.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.