RadioShack reports another big loss, launches more cost-cutting

RadioShack disclosed more losses and a new round of cost-cutting Thursday, and its top executive cautioned that an effective fix to the retailer’s financial woes remains a huge challenge despite signs of progress at remodeled stores.

“We know that coming to a long-term solution will be difficult and our ability to get there will be significantly affected by our performance during the critical holiday period,” CEO Joe Magnacca told Wall Street analysts during a conference call in which he declined to take questions.

“There is no predetermined outcome to our recapitalization work, and there can be no assurance that we will be able to successfully implement our long-term solution,” he warned.

Magnacca is trying to revamp RadioShack’s product lineup and image as the chain weathers declining mobile-phone sales. The company is also battling a key lender that is blocking a plan to close up to 925 underperforming stores and is claiming that RadioShack violated the terms of a loan.

The Fort Worth-based electronics retailer said it lost $161.1 million for the three months that ended Nov. 1, compared with a loss of $135.9 million a year ago. It was the 11th straight quarter of losses. Sales declined by 16 percent to $650.2 million.

The quarterly loss worked out to $1.58 a share while the average prediction by analysts was $1.04, according to Thomson Reuters I/B/E/S. The stock (ticker: RSH) lost 4 cents to close at 51 cents.

Falling sales and depleting cash forced the retailer to launch a new round of cost-cutting in the quarter — aimed at saving upward of $400 million — to avoid a bankruptcy that some experts believe is coming.

Fitch Ratings said RadioShack’s massive new plan won’t be enough “to forestall restructuring” the company’s debt in the near term. Without liquidity beyond one revolving line of credit, “there continues to be the likelihood of a bankruptcy filing or other outcome that is detrimental to bondholders.”

While traffic declined and softness in the mobility business caused comparable-store sales to fall by 13.4 percent, the news wasn’t all bad. Magnacca said that sales in other categories — such as speakers, headphones, batteries and fitness technology — did much better and that gains continued during the recent Black Friday shopping weekend.

“In our retail segment … comparable-store sales at U.S. company-operated stores were only down 2.0 percent compared to last year, and improved throughout the quarter as we focused on higher margin products, including private brand, and innovative new programs like Fix It Here,” Magnacca said in a statement.

“Moreover, our core network of ‘Interactive Remodel’ stores collectively performed 12 percentage points better than the total chain on a comparable basis, and in the retail segment performed almost 15 percentage points better on a comparable basis,” he said.

David Strasser, an analyst with Janney Capital Markets, noted “glimmers of hope” in some areas of the business but added in a research note: “We wonder if there is enough time left to complete the turnaround without another infusion of cash.”

RadioShack, Strasser warned, “will have to focus on stopping the decline of gross profit dollars if they hope to avoid a bankruptcy filing.”

Magnacca gave a sober appraisal of RadioShack’s feud with a major lender, Salus Capital Partners, which sent the company a notice of default alleging that new refinancing terms violated its loan agreement — a claim the chain rejects.

“We face significant challenges, including from our term-loan lenders who claimed last week that the October third recapitalization agreements breached their credit documents,” the CEO told analysts. While declining to go into detail, he reiterated that “we disagree and to date have continued to receive support from our revolving-credit lenders.”

Magnacca said the cost reduction initiatives cover a range of activities related to the headquarters, field, stores and store support, with the goal to “right-size our business.”

The CEO said that 175 underperforming stores have been closed this fiscal year. RadioShack cannot shutter more than 200 a year because of loan terms with one lender despite original hopes to close up to 1,100 — now 925 with the recent closures. The company ended the quarter with total liquidity of $62.6 million, including $43.3 million in cash and cash equivalents.

Magnacca sounded markedly upbeat about the three-day Thanksgiving holiday sales, noting that the chain’s revenue was down just 2 percent, compared with the reported industry slump of 11 percent.

“Our result was notably a strong result in comparison,” he said, adding that it would have been even better if not for poor cellphone sales.

Insisting that RadioShack’s turnaround plan is on the right track despite the poor results, he said many key measures began in October and are just now gaining traction.

One analyst, Will Frohnhoefer of BTIG Research, said: “Since no questions could be asked, the plausibility of the slide is hard to verify. For example, why would a company whose term-loan lenders are threatening them with a default action believe that it will be able to achieve $41 [million] in savings from professional fees?”

Robert Leone, a marketing professor at TCU’s Neeley School of Business, said RadioShack’s outlook appears dismal, noting surprisingly limited merchandise selection at a recently remodeled store in the area, as well as efforts to expand and promote in-store Fix It Here repair departments at a time when shoppers are looking for gifts, not servicing their cellphones.

“They don’t seem to have anything in place to sustain them for the long run,” Leone said. “It’s unfortunate that a brand with such an iconic stature has gotten to this point. But we’ve seen that with other brands just as prestigious. Times have changed, and they haven’t changed with it. … Then again, companies can surprise you.”

This story was originally published December 11, 2014 at 7:24 AM with the headline "RadioShack reports another big loss, launches more cost-cutting."