Is RadioShack going out of business?
Tomorrow's earnings report
RadioShack is set to report fiscal 2015 second quarter results on Thursday (9/11). Consensus estimates are calling for the Fort Worth, Texas-based company to report a loss of 66 cents a share on revenue of $736 million for the July-ending quarter. Interestingly 'Insiders' only own 2% of the company and the company is saddled with over $600 million of debt.
Guest Post from Multichannel Merchant
Daniela Forte, journalist for Multichannel Merchant (serves catalog companies and online merchants, as well as retailers, manufacturers and wholesale/distributors, who sell goods via print catalogs and/or transactional Websites) contributed the following guest post in advance of the earnings report:
"Electronics retailer RadioShack could file for bankruptcy soon after its shares lost nearly a third of their value, brokerage Wedbush Securities reported Tuesday, according to Reuters.
This would make the stock worthless by the end of the year. The stock fell as much as 20% to 76 cents per share on Wednesday, adding to a 23% plunge.
“Our price target reflects our expectation that creditors will force a reorganization and wipe out RadioShack’s equity,” Wedbush analyst Michael Pachter told Reuters.
RadioShack reported its ninth straight quarterly loss in June and is struggling to sustain its turnaround efforts.
Reuters reported that Pachter, who previously had a price target of $1, said he was lowering his price target as declining sales of consumer electronics and falling margins were likely to force the company to seek bankruptcy protection to turn around its business.
Radio Shack has made attempts to close 1,100 stores this year, but its lenders did not agree with its plans, forcing the company to close 200 stores a year.
“It’s just a further example of cannibalization of brick-and-mortar stores as a result of increased market share going to Internet retailers and e-commerce,” said Abe Garver, Managing Director of BG Strategic Advisors, and author of the Yahoo! Finance blog Moving the e-Markets.
Garver said Radio Shack needs to play to its strengths, as opposed to many e-commerce companies, it has 4,250 store fronts which could be valuable from a last mile perspective.
“If you are Amazon, you need to increase your ability to distribute orders in dense markets,” said Garver. “Since Radio Shack is in all these places, Amazon could come in opportunistically with this distress seller and acquire its physical store assets, which is important component in the ecosystem where they are weak.
Garver speculated that it would be less expensive for Amazon or another strategic acquirer to "Buy versus build".
“Overnight Amazon could have 4,250 consumer-facing stores,” Garver said. “If they are having to collect sales tax anyway, why not have a small physical store where you can let customers come and pick up more urgently needed Amazon Prime packages?”
Stuart Rose, managing director of Tully & Holland Inc., said there aren’t any RadioShack products available in stores that couldn’t be purchased online. For example, he said, RadioShack used to be a major seller of mobile phones, audio and GPS systems from its stores, but most of the business has shifted online.
“They have been struggling for years [with their store locations] and weren’t able to pull off anything dramatic,” said Rose.
Rose said he didn’t think RadioShack could survive while carrying anywhere near its current level of physical locations, or as a pure-play e-commerce operation..
“I don’t know how much online business they would do if their stores went out-of-business,” said Rose. “I would see someone buying the brand and re-launching it in a much more scaled-down version.”
Rose said he could see “vulture investors” and others who pursue distressed-businesses as possible candidates to buy out Radio Shack. He added these types of entities have been queuing up for some time as the eventual demise of the franchise has been widely predicted.
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