RadioShack Corporation (RSH) has been desperately clinging to life for some time now. I applaud RSH stock for its strong survival instinct, but it’s time to throw in the towel.
The company reported third-quarter earnings today, and to no one’s surprise, the results were horrendous. RadioShack lost $1.58 per share, a far cry from the $1.04 per share analysts were expecting RSH to lose.
(Keep in mind that RSH stock closed at 55 cents per share on Wednesday, so the company managed to lose about three times what the company itself is worth — in one quarter.)
RSH stock has fallen another 7% or so as of this writing, and is down 80% this year as investors increasingly see that the electronics retailer is making a beeline to bankruptcy.
$400 Million in Annual Cost Cuts
The third quarter marked an 11th straight quarter of sales declines. But it gets worse: net sales of $650 million weren’t even close to the $717 million consensus figure analysts were looking for.
The Grim Reaper has been knocking on RadioShack’s door for years now, ever since Best Buy Co Inc (BBY) and the mighty Amazon.com, Inc. (AMZN) began unceremoniously muscling in on the consumer electronics industry. In its latest effort to trim down and cut losses to stay competitive, RadioShack CEO Joseph Magnacca said today that RSH would be making major cuts to its headquarters, stores and store support, and marketing efforts.
This decision comes just days after an announcement that RadioShack employees would lose their 401k matching. In essence, the only way RadioShack is keeping the Grim Reaper at bay is by agreeing to die — but on its own terms.
What About That $590 Million Lifeline?
RSH stock briefly rallied 35% higher in October after the hedge fund Standard General LP agreed to give RadioShack a $590 million lifeline.
But, as I noted then, Standard General LP is RadioShack’s largest investor, so there are some ulterior motives attached to that “lifeline”:
“RadioShack has a new lease on life, but it’s a short-term lease. Standard General is just making sure RSH stock doesn’t plunge to $0 before June 2015, when the hedge fund will be freed up to take over RadioShack’s board, seek a sale and further restructure RadioShack’s capital structure without the consent of the electronics retailer.”
If there is a single bullish aspect to RSH stock, I am unaware of it. It’s being accused by lenders of defaulting on a loan, and its plan to remain relevant is to shutter stores as quickly as possible, cut back on marketing, and pull back on store support — just in time for the holiday season?
I feel the same way I did a few months ago when I wrote that investors should sell RadioShack stock before it hits $0. The only way this company survives is by taking on a lot more debt than it already has, doing some much-needed capital restructuring, and throwing money at last-ditch turnaround efforts.
But that’s not gonna happen. Sell RSH stock now before things get even worse.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
