It’s been a tough 12 months for RadioShack, but with investor Standard General throwing it a lifeline, can it turn itself around?
It’s been a tough 12 months for Radio-Shack, but with hedge fund and investor Standard General LP throwing the retailer a liquidation-avoiding lifeline, is the retailer about to turn itself around?
This fiscal year RadioShack has lost more than 60% of its stock valuation as a whole manner of financial issues have rocked the consumer electronics retailer. RadioShack has seen a decline in revenue over its last nine consecutive quarters, and its last same-store sales results (2014 Q1) saw a dire drop of 14%.
In its latest full financial year, the company posted a net loss of $400m (£250m), on top of a net loss of $139m (£87m) in the previous year. As a result, the retailer’s debt became unmanageable.
At the end of play last Friday RadioShack announced that it has entered into “definitive agreements to restructure a portion of its existing debt”. RadioShack reached an agreement with a consortium led by Standard General LP to refinance about $590m (£369m) of loans to restock inventory ahead
of the holidays.
The cash injection will provide RadioShack with a financial cushion to make it through Thanksgiving and Christmas – an absolutely vital shopping season, particularly for consumer electronics specialists. However, this quick fix is not a long-term lifeline.
Realistically, for the fraught business to survive, we would need to see a marked number of store closures. The electronics market is a very different place now to when RadioShack was at its peak around 2000, with shoppers increasingly heading online, large store networks – like RadioShack’s 4,500 US stores – are losing relevance.
However, earlier this year Radio-Shack creditors blocked a plan to shutter 1,100 stores – its current debt agreement prevents the group from closing more than 200 stores a year.
Even if this limitation was changed, it would take very high levels of investment to set Radio-Shack back on a road to recovery (and with no guarantee). It’s likely Standard General has chosen to throw this short-term lifeline out in order to ensure the business stays afloat until June 2015, when the hedge fund will be freed up to take over RadioShack’s board and either seek a sale and or restructure RadioShack’s capital completely.
- Louise Howarth is an analyst at Planet Retail