On Thursday, September 11, RadioShack say that they may have to file bankruptcy. Efforts of the retailers which started about 18 months ago seem to have built a financial wall, causing them to file for indebtedness - an opportunity to reorganize their business.
Joe Magnacca, Radioshack's chief executive, said that their current pace to address their liquidity needs is not moving fast enough. It looks like the company's profit is not sufficient, the business continues to go south.
That being said, customers still look at the brighter side taking changes in their stores including smartphone fixes and product assortment into consideration.
RadioShack's debt stands at $658M not due until 2018 through 2019. The company ended the quarter at an income of $30.5M and an available credit of $152M. This is a huge downfall from the prior quarter where they got a profit of $61.8M with a debt availability of $361.9.
According to Magnacca, the company is exploring their options to restore their balance sheets and is currently discussing this with various parties. In a conference call, Magnacca didn't mention anything about bankruptcy. Along with landlords, shareholders and bondholders, the company targets the reconstruction of debts, liquidation of stores and the reduction of expenses.
Within the year, RadioShack have not renewed their leases to liquidate over 50 stores worldwide. They initially decided to close almost 1/3 of their stores totaling 1,100 out of 4,200 chain stores. Nevertheless, their lender did not acknowledge this since they are only allowed to close about 200 stores per annum.
The strong price competition and production of new smartphones were their weak links in the 2nd quarter. Fort Worth reported that they lost $137M ($1.35/share) in the last quarter as compared to last year's closing price at $52.2M ($.51/share).
Aggressive price competitions among other wireless carriers like Sprint, Verizon and AT&T are enticing their customers to change networks. Michael Pachter, Wedbush Securities' analyst, believes that a prepackaged bankruptcy is fast approaching considering the timely completion of the creditor's agreements.
The operational decisions of RadioShack is being analyzed by creditors who are now in control while management decisions are irrelevant for equity investors. The turnaround plan definitely needs meticulous execution, Pachter added.
The stock price recently closed at $1.02/share gaining 9%. The company plans to be on top of the game as the holiday season approaches.