Great ResignationInflationSupply ChainsLeadership

RadioShack’s sales batteries are low

June 10, 2014, 5:12 PM UTC
Photo courtesy: Justin Sullivan—Getty Images

The clock is ticking for RadioShack.

The troubled electronics retailer reported another big sales decline, posting a 14% drop in comparable sales for the three months ended May 3 and a much wider loss. Its lenders won’t let it close 900 underperforming stores it says it needs to so it can turn itself around, and mobile carriers are holding big promotions in their own stores, instead of at RadioShack, to get customers to switch.

All these problems point to another potential cash crunch in the short term if RadioShack’s  (RSH) turnaround plan, focused on new in-store services and an overhaul of 40% of its product offerings, doesn’t take hold quickly enough.

“Our ability to maintain sufficient liquidity for the next 12 months to fund our operations and execute our strategic turnaround plan is contingent on improving the current trend in our operating results,” the company said in a regulatory filing Tuesday morning. So unless its sales, which have been in free fall since 2010, pick up, RadioShack said it will have to hold its hat out again, which will be hard given its debt load, downgrades this winter by the ratings agencies and a retail landscape that is hostile to consumer electronics retailers.

Radio Shack, which secured new loans just before the 2013 holiday shopping season, said that during the quarter, it had had to tap its credit facility for “general corporate purposes,” i.e. its day-to-day operations. Its cash was down to $61.8 million on May 3, from $109.6 million a year earlier.

“This is a solid statement that this is a troubled company from an operational and liquidity standpoint,” said David Tawil, co-founder of hedge fund Maglan Capital and a former bankruptcy  attorney. “It’s going to be a tough road.” Shares were down 9% to $1.40, giving the retailer a market value of $140 million.

Radio Shack CEO Joe Magnacca, a turnaround expert who made his name by revamping the Duane Reade drugstore chain before Walgreen (WAG) bought it in 2010, put on a brave face on a call with Wall Street analysts. 

He noted that RadioShack’s increased selection of Apple (AAPL)  accessories had made it a Top 5 Apple retailer. The company has shrunk its supplier base, giving it more clout with those vendors and allowing it cut costs on some core products by as much as 8%. And he’s seeing better sales at the RadioShack stores that have been remodeled. On his watch, RadioShack has updated its logo, reduced store clutter and carrying more private-label goods, which offer higher margins.

Putting the merits of that his strategy aside, Magnacca has to deal with the reality of a shrinking consumer electronics market– Best Buy (BBY), hhgregg (HGG) and even Costco Wholesale (COST) have all reported declining electronics sales.

That has made it harder for RadioShack to convince anxious lenders to accept the terms it has offered to be able to close hundreds of stores. (It has 4,250 U.S. stores) In March, RadioShack announced a big plan to close 1,100 stores, but its lenders stopped it from doing so, allowing it to only close 200.

RadioShack said talks with those lenders have been “constructive” but made it clear the retailer ultimately has no choice but to eventually cull those stores.

“We continue to have discussions with our lenders about store closings because it’s a key part of our turnaround,” CFO John Feray said.