RadioShack's (RSH) plan to revive the struggling electronics chain is crumbling, with the company warning that the company could declare bankruptcy.
In announcing its latest quarterly earnings, RadioShack said on Thursday it is running out of money, noting in a regulatory filing that the shortfall "raises substantial doubt our ability to continue as a going concern." The retailer said it may have to file for Chapter 11 bankruptcy protection.
RadioShack said it is exploring other options to stanch the bleeding, including raising additional capital, restructuring the company's debt, consolidating stores and other measures to cut costs. RadioShack CEO Joseph Magnacca also said in a statement that the company is in talks with its lenders, shareholders and other company stakeholders to come up with what he called a "long-term solution."
The possibility that RadioShack could raise capital and avoid bankruptcy send its shares surging nearly 10 percent, to $1.01, in early afternoon trading. Bloomberg News reported that RadioShack is in talks with UBS (UBS) and Standard General, the company's biggest shareholder, about borrowing money.
That optimism, however, may be short-lived.
RadioShack is in deep financial trouble. Since the end of the last quarter, the Fort Worth, Texas-based company has burned through more than $30 million in cash while its creditors have reduced the amount of money the chain can borrow under its existing lines of credit.
The company on Thursday reported a second-quarter loss of $137.4 million, or $1.35 per share, compared with a loss of $52.2 million, or 51 cents, in the year-ago period. Excluding one-time items, RadioShack lost $1 a share, worse than the 66 cents Wall Street analysts expected. Revenue plummeted 22 percent to $673.8 million. The company's stock has plunged more than 57 percent this year.
RadioShack, which has more than 4,400 stores, has recently been forced to scale back its plans to shutter more than 1,000 stores after lenders balked. In hopes of remaking its fading brand, the company has started remodeling more than 200 stores by making them more open and inviting to customers. It has focused on selling smartphones and wireless plans rather than a broader range of electronics.
Speaking today to Wall Street analysts to discuss RadioShack's financial results, Magnacca sought to paint a positive picture of the company's prospects, arguing that the company's financial performance didn't adequately reflect the progress it is seeing it its retail and mobility businesses. RadioShack also is hoping that consumers will turn to it for assistance repairing electronics even as it continues to cut costs and close more stores.
"It's clear that the current pace of our turnaround efforts is simply not fast enough to address our near-term liquidity needs," said Magnacca, who RadioShack hired last year to lead a turnaround. "This is a fact despite the steady progress we are making with our strategic initiatives.... Innovation has become part of the RadioShack DNA, a far cry from where we were before our turnaround efforts began."
Some company watchers aren't buying it. Wedbush Securities analyst Michael Pachter, who predicted this week that RadioShack could soon go bankrupt, told CBS MoneyWatch that he is skeptical that anyone will ride to Radio Shack's rescue. He expects the retailer to seek protection from creditors in a matter of weeks.
Pachter said in an interview that he heard "nothing positive" in the earnings call, adding that it would be hard for the company to obtain financing given the company's precarious financial position. Pachter has a "sell" rating on RadioShack shares, as do six other analysts.
Magnacca -- who didn't take questions from analysts on the call, as is customary -- offered no specific about the company's strategy, according to BTIG analyst William Frohnhoefer, who rates the stock as a "neutral." He also noted that a financing deal with UBS and Standard General wouldn't necessarily rule out a bankruptcy.
"[F]inancings like this typically have a dual purpose," Frohnhoefer said in an email. "They can be a source of cash to help the company avoid bankruptcy. But if business conditions further deteriorate, they can become a first-out [debtor in possession] financing in a Chapter 11 proceeding." That increases the chances that a lender can recoup its investment in court if a company goes bankrupt.