RadioShack's situation just got shakier

Shares of RadioShack (RSH), the once-dominant consumer electronics retailer, plunged more than 9 percent Friday following a Wall Street Journal report that the company was forced to scale back its plans to shutter underperforming stores because of opposition from its lenders.

Fort Worth, Texas-based RadioShack wanted to close as many as 1,100 locations as part of Chief Executive Joseph Magnacca's plan to turn around the struggling chain. However, since its lenders wouldn't agree, RadioShack can close only 200 stores, according to the newspaper.

Talks about the closings are continuing, and the Journal also noted that some lenders are pushing for RadioShack to shutter as many as 2,000 locations.

RadioShack earned kudos for its creative Super Bowl TV commercial in February that featured celebrities from the 1980s -- including former wrestler Hulk Hogan, "Cheers" actor John Ratzenberger and gymnast Mary Lou Retton -- poking fun at the perception among consumers that the chain is stuck in the past.

Unfortunately, that perception is based in reality as evidenced by RadioShack's disappointing holiday results. Skeptics have argued that the commercial was a waste of money.

"I think the lenders made a mistake last fall, clearly believing that their capital infusion would turn things around," said Michael Pachter, an analyst with Wedbush Securities who has a sell rating on the retailer. "That clearly didn't happen, and now they are worried about anything that could lower overall sales."

Last year, RadioShack received an $835 million loan from GE Capital that was secured by its inventory to free cash ahead of the critical holiday season. Its struggles, though, continue, and it has lost money for eight straight quarters. RadioShack, ubiquitous in malls for decades, suspended its dividend in 2012.

Its shares have plunged more than 47 percent this year to around $1.35. And Wall Street isn't optimistic that things will get better. A whopping 36 percent of shares are held by short sellers, who profit when the stock price declines. Analysts expect the losses to continue at least through 2015 as revenue keeps falling.

Under Magnacca, who joined the company last year from Walgreen (WAG), RadioShack has tried to jump-start sales by redesigning its stores and overhauling its merchandising. The company opened a new concept store in New York City as it tries to reduce its dependence on smartphones. None of these efforts have worked, and RadioShack is in such dire straits that analysts have said a sale is not unlikely.

Magnacca, though, remains undaunted. In an interview posted on the website of the Consumer Electronics Association, he said the retailer needed to keep making "bold moves" to reinvigorate a brand that had "been neglected for years." Nonetheless, he's well aware of the challenges RadioShack faces.

"There is a tremendous amount of opportunity to have maximum impact at RadioShack, but we don't have the luxury of time," he said. "We have to make changes quickly and, at the same time, make them thoughtfully."

Of course, that's easier said than done.

  • Jonathan Berr

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