RadioShack (RSH) is the wrong company at the wrong time. Brick-and-mortar retail remains challenged in the age of e-commerce, and many specialty electronics that were once hard to find are now available quickly and cheaply with just the click of a mouse.
RadioShack hasn’t turned a profit since fiscal 2011 as a result of these big trends, and while losses are forecast to narrow in 2014, that doesn’t solve the fact that its burning cash with no hope for a turnaround. Consider that Q3 revenue was down about 10% year-over-year … and down about 19% from fiscal 2009 sales!
Meanwhile, RSH stock is sitting on half a billion in debt but its cash on hand is down to about $316 million at the end of September.
When a company is losing cash, suffering falling sales and watching its cash cushion evaporate, it’s a recipe for disaster. With a credit rating of CCC+ from Standard & Poor’s, RadioShack is clearly in junk territory and may not be able to borrow its way out of this cash crunch.
Now, believers will point to the fact that RSH is up 25% year-to-date, and that new CEO Joe Magnacca is on his way to transforming the business. But investors should remember that there isn’t a lot to work with here before they get too excited. RadioShack is valued at less than $300 million, canceled its dividend last year and has pretty much bet the farm on a “Let’s Play!” message for its stores and its brand … and if this doesn’t catch on, it will be lights out for RadioShack in 2014.