RadioShack Sends Out an SOS

by Marc Bastow | September 26, 2012 12:05 pm

RadioShack Sends Out an SOS

There’s a stirring scene in the movie Titanic where 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 (NYSE:RSH[1]) looks like this morning?

Tuesday saw a jump in trading that saw 6 million shares of the electronics retailer change hands — about two-thirds higher than a typical trading day. Perhaps somebody knew something, as early this morning, CEO James Gooch stepped down[2] 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[3] 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 the business and financial condition at RSH during that time, with the net result being a dividend suspension and tanking of the stock price[4].

Well, if things weren’t ugly before, they are now.

RadioShack’s problems are myriad and well documented[5], as the old brick-and-mortar electronics retailing model — embodied at this point by RSH and Best Buy (NYSE:BBY[6]) — struggle against the tide of consumers buying tablets and smartphones either online, at discount retail stores like Wal-Mart (NYSE:WMT[7]), from telecoms like AT&T (NYSE:T[8]) that provide data for those gadgets, or straight from the source, a la Apple (NASDAQ:AAPL[9]) Stores.

The stock price? Including marginal gains today (investors apparently are taking Gooch’s departure well), 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 today. In fact, this week, the company was dropped from the S&P Mid-Cap 400[10] as its market cap became too small for inclusion in the index.

So where does whomever takes over the corner office stand? Below decks.

What once were at least flat profit margins in 2011 are now under water, and revenue growth is struggling to remain above the surface. Even after suspending 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 — just like 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.

Endnotes:
  1. RSH: http://studio-5.financialcontent.com/investplace/quote?Symbol=RSH
  2. CEO James Gooch stepped down: http://investorplace.com/2012/09/radioshack-chief-bows-out-rsh-gooch/
  3. lawsuit announced and filed Tuesday: http://zlkdocs.com/RSH-Info-Request-Form-291
  4. dividend suspension and tanking of the stock price: http://investorplace.com/2012/07/radioshack-posts-q2-loss-suspends-dividend-shares-plunge/
  5. myriad and well documented: http://investorplace.com/2012/07/is-it-time-to-put-radioshack-on-death-watch/
  6. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  7. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  8. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  9. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  10. dropped from the S&P Mid-Cap 400: http://investorplace.com/2012/09/sp-500-to-add-adt-and-pentair-ltd/

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