Shares of RadioShack (RSH) have jumped 14% to $1.03 today at 11:58, as the beleaguered electronics retailer replaced its CFO amid attempts to restructure its debt. But here’s a reminder of its big problem: Few want what RadioShack is selling. In a note released on Sept. 12, UBS analyst Michael Lasser explained:
Getty Images 2Q results show limited consumer appetite for RSH’s product offerings RSH faces a myriad of challenges in reaching profitability, including difficulty in its mobility business & the need to revamp the retail product assortment. The company announced a comp decline of -20% which was worse than our est. of -9.0% (cons. 11.6%). The comp sales decline was largely due to tepid consumer demand for product offerings in the mobility segment which comp declined -30% during the quarter. Mgmt cited overall softness in the consumer electronics industry as an additional obstacle to the company’s pursuit of profitability. RSH’s gross margin increased by 30 bps to 35.3%, but was flat if excluding the impact of inventory reserves. While the company spoke to some improvement as of late, we think the road ahead is difficult.
The company is exploring financial alternatives to restructure debt obligations to undergo store closures. Total liquidity went down from $424 mm to $182 mm during 2Q and lenders have put additional pressure on RSH’s ability to tap into its revolver. At its current burn rate, RSH will need further financing in the near term for any strategic turnaround of the business. We are not sure that it will be able to get all of its stakeholders to agree on a plan. Plus, the more time that goes by, the more likely that vendors will become concerned.
Lasser rates Radioshack a Sell with a 50 cent price target.
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