RadioShack sends out an SOS
The distressed company can try to rearrange the deck chairs, but its ship seems lost.
There's a stirring scene in the movie "Titanic" in which passengers on the lowest decks of the ill-fated liner are following the rats as they scurry to higher ground to escape the rising flood.
Anyone think that's what RadioShack (RSH) looks like now?
A jump in trading Tuesday saw 6 million shares of the electronics retailer change hands -- about two-thirds higher than on a typical trading day. Perhaps somebody knew something, as early Wednesday morning CEO James Gooch stepped down from his position and from the board of directors. CFO Dorvin Lively will man the post for the time being as RSH's board tries to find the right fit for what will either be one of the great turnaround stories in business history or an orderly liquidation.
While I couldn’t tell you the exact timing here, the resignation does come on the heels of a lawsuit announced and filed Tuesday on behalf of investors who purchased RSH stock between July 26, 2011, and July 24, 2012. The suit alleges the company made misleading statements regarding its business and financial condition during that time, with the net result being a dividend suspension and tanking of the stock price.
Well, if things weren’t ugly before, they are now.
RadioShack’s problems are myriad and well documented, as the old brick-and-mortar electronics retailing model -- embodied at this point by RSH and Best Buy (BBY) -- struggles against the tide of consumers buying tablets and smartphones online, at discount retail stores like Wal-Mart (WMT), from telecoms like AT&T (T) that provide data for those gadgets, or straight from the source, a la Apple (AAPL) Stores.
The stock price? Including marginal gains Wednesday, RSH shares are down 73% year to date. That has led to a scything of RadioShack’s market capitalization from $1 billion at the end of 2011 to $255 million. In fact, this week, the company was dropped from the S&P Mid-Cap 400 as its market cap became too small for inclusion in the index.
So where does whoever takes over the corner office stand? Below decks.
What once were at least flat profit margins in 2011 are now underwater, and revenue growth is struggling to remain above the surface. Even after a suspension of the dividend, RadioShack’s free cash flow is trending lower. The only good news is that RSH had just more than $500 million in cash as of June 30. We’ll see how much is left after third-quarter earnings come out.
I have no idea how RadioShack is going to find a new CEO to jump into the fray, considering that shelling out big bucks is out of the question and stock options can’t seem particularly attractive. And that’s bad, because RSH needs brainpower to survive. As Best Buy has illustrated, ideas about how to save the brick-and-mortar electronic retailing business are few and far between.
Life jackets, anyone?
Marc Bastow is an assistant editor at InvestorPlace.com. As of this writing, he was long AAPL.
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What Radio Shack needs is a real tech guy to bring back the true spirit of Radio Shack. Bring back the quality tech and maybe have less focus on selling phones which can't make for lot's of profit unless of course you sell a lot of them. Who does not sell phones these days?
I used to go to Radio Shack to browse and get ideals for projects or check out the latest projects.
I think a lot of my first audio equipment was bought at Radio Shack. They seem to have a little of this and a little of that and they don't really have anything that creates a lot of traffic. I think at one time they thought cell phones would bring that traffic in. But its not the right traffic. Radio shack needs to start selling better accessories. For everything! From Audio to Video, to cell phones to PC and tablet stuff.
Stop marketing the big stuff in stores and focus on accessories. People don't order online accessories. Shipping too expensive. They order online the hardware. Radio Shack needs to support that hardware.
Well when a company treats their employees terrible...really bad..penalizing employees if someone doesnt buy service plans
it is bound to be picked up by thecustomers. I mean who made the awful decision that radioshack should sell phones? Everyone I know goes to AT&T or verizon....radio shack is for other things.................sorry its not the employees fault and they shouldnt be harrassed every single day..........................aurevwa Radio shack...couldnt happen to a nicer company
Ok I'll start it off. Good, can't wait to see them on the news and on their knees (like GM and Dodge were) infront of the next administration and prez, (whomever it is), asking to keep them alive with a bailout...
GO ROMNEY 2012!!! NO BAILOUTS!!!
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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