RadioShack sends out an SOS

The distressed company can try to rearrange the deck chairs, but its ship seems lost.

By InvestorPlace Sep 27, 2012 8:30AM
Gary S Chapman, Photographers Choice RF, Getty ImagesBy Marc Bastow

iplogoThere'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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12Comments
Sep 27, 2012 1:23PM
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Radio Shack lost it's way years ago when it changed from a place the electronic hobbiest could go for parts, kits, and information. Now it's just another gadget retailer, and there are plenty of those. They are irrelevant now.
Sep 27, 2012 12:36PM
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Radio Shack has sucked for over 25 years.   
Sep 27, 2012 2:45PM
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Radio Shack, you used to be one of the coolest stores. You could buy books about electronics, ham radios, etc. The parts selection for the hobbyist was amazing. Even your private-brand stereo equipment was good quality back in the day. Now you're just a junk shop, a badly run cell phone store. The employees are ignorant and rude. Stores have no selection on anything, and no stock.  There is nothing wrong with you being a brick-and-mortar store, Radio Shack. If you went back to the old way of doing business your customers would come back. This country is in desperate need of a quality electronics retailer. The business is there for the taking, are you going to step up to the plate? Train your staff. Pay them well. Go back to stocking parts, and quality items. Give Sprint back all of its cell phones. Phones are fine, but are you a phone store, or an electronics store?
Sep 27, 2012 1:33PM
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As an ex manager for "The Shack" All I can say is good!!! This was once a great company that was built on the blood sweat and tears of hard working people. They got greedy and stupid and alienated most of their once loyal workforce and customer base!!! they deserve to crash and burn. I will be on the sidelines lauaghing and pointing as they do :)
Sep 27, 2012 1:31PM
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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.

Sep 27, 2012 1:25PM
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GO Figure, they hire a bunch of mental midgets and then don't respond to a  customers problems that were created by these same incompetents. It takes badgering and repeated tries at contacting them and if and when there is an answer, the results are bad news for the customer.
Sep 27, 2012 2:42PM
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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

Sep 27, 2012 2:26PM
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You would think that since the name is "Radio Shack" they would have at least one very good radio receiver for sale, but they don't, nother but junk. 
Sep 27, 2012 1:48PM
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I fail to understand how 'the shack' can send an SOS.they havent delt with any radio stuff in years.let alone cw."radio Shack,You have questions,we have dumb looks."
Sep 27, 2012 2:50PM
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If Radio Shack is sending out an SOS, I wanna know where they went to buy the Morse key....
Sep 27, 2012 2:08PM
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They should have changed their name to tech shack and sold the latest & greatest tech gadets and accessories. Too Late. Turn out the lights the parties over!
Sep 27, 2012 11:52AM
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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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