Radio Shack (RSH) Sinks on Disappointing Earnings and Announcement of Massive Store Closings
Shares of Fort Worth, Texas, based Radio Shack Corp. (RSH) fell sharply on Tuesday, against the backdrop of a strong day on Wall Street overall. Radio Shack's stock fell 47 cents, or 17.28%, to $2.25 per share, on volume of well over 20 million shares. The company announced lower than expected earnings for the 4th quarter, and also announced that it is closing more than 25% of its stores in an attempt to overcome it's financial troubles.
Investors are concerned that the company may not survive as a going concern.
Radio Shack is an electronics retail store franchise operating in the US, Europe, South America and Africa. It is one of the leading retailers of mobile technology products and services, in addition to personal and home technology products and power supply needs. The company has more than 4,300 retail outlets, with sales of $4.26 billion in 2012, and 34,500 employees. The company's stock trades on the New York Stock Exchange. On Tuesday Radio Shack released a battery of poor numbers. Operating revenues for the 4th quarter came in at $935.4 million dollars, down from $1,171.4 million in the 4th quarter of 2012. The company reported a net loss of $191.4 million, compared to a net loss of $63.3 million last year. Just as significant, the company reported that same store sales declined by 19% from a year ago, which was a larger decline than expected. In response to the disappointing sales and earnings figures, the company announced that it is closing 1,100 underperforming stores - more than 25% of the company total - in an effort to improve the company's revenues and bottom line. Investors largely interpreted the move as a sign that Radio Shack's future may be in doubt. But Chief Executive Officer, Joseph Magnacca and the company's new Chief Financial Officer, John Feray, provided a more optimistic assessment. "We were trying to do too much too quickly," said Magnacca. 'I'm confident we can execute the turnaround." Even with the store closings, Radio Shack will still have over 4,000 stores, when its 900 dealer franchise operations are included. The company officers also indicated that Radio Shack has sufficient liquidity to meet its obligations this year. Less clear was the pace of the store closings. Under the company's current credit agreement, it is allowed to close only 200 stores per year, and no more than 600 over the life of the agreement. Radio Shack will also need to negotiate early termination arrangements with the landlords of the stores slated to be closed. Those early termination agreements will require payment of cash that lenders may be unwilling to grant. Despite reassurances from company management, analysts aren't convinced Radio Shack will be able to recover. Said UBS Analyst Michael Lasser, "It's just hard for a cost structure to withstand that type of sales decline...It's hard for us to see how the company will restore its sales base as the environment probably won't get much easier." In addition to increasing stresses in the retail environment in general, Radio Shack is facing heavy competition from giants such as Best Buy (BBY
), Verizon (VZ
) and Wal-Mart (WMT
). Other News About Radio Shack Corp. RadioShack Will Learn the Hard Way What J.C. Penney Knows
Radio Shack is re-configuring it's stores, just like JC Penney did. Radio Shack's Super Bowl Comeback
Radio Shack acknowledged that its stores are outdated and in need of a major update. Other Stocks in the News JC Penney Is Changing Course
JC Penney CEO, Mike Ullman, has the company on track for future profits. Lower prices may get teens back to Abercrombie
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Published on Mar 5, 2014
By Kevin Mercadante