Earlier this year, RadioShack Corporation (RSH) decided to address the widespread consumer belief that it was stuck in the 1980s with a clever Super Bowl commercial that opened with one of the retailer’s workers on the phone, purportedly answering a call from the aforementioned decade that “wanted their store back.”
RadioShack was in deep trouble before the ad ran and still remains in deep trouble. The Fort Worth, Texas company is now locked in embarrassing fight with creditors Salus Capital Partners and Cerberus Capital Management over claims whether it has breached the terms of a $250 million loan.
Not surprisingly, cash-strapped RadioShack doesn’t think its done anything wrong, saying in an SEC filing that it “believes that no event of default has occurred … and that the demand for immediate payment or any other exercise of remedies is without merit.”
Salus and Cerberus have also blocked Radio Shack’s efforts to shutter 25 percent of its 4,300 U.S. outlets, a move its will save $200 million.
Shares of RSH, which have plunged more than 77 percent this year, are trading at about 57 cents. It seems only a matter of time until RSH stock is delisted from the New York Stock Exchange. RadioShack stock is a sucker’s bet that should be avoided.
If RadioShack can’t resolve this dispute, it’s hard to imagine how it can avoid filing for Chapter 11 bankruptcy protection. Resolving the dispute only will hasten RadioShack’s inevitable demise by a few months at best.
As of the end of August, RSH had $30.5 million in cash and cash equivalents, down from $109.6 million in February. At the time, CEO Joe Magnacca told Wall Street that “time was running out” for RadioShack.
When Magnacca was hired in 2013 as RadioShack’s fourth CEO in three years, the retailer was already heading into the fiscal abyss. RSH, which traces its roots to 1919, hasn’t kept up with the times.
The company sold one of the first mass-produced personal computers called the TRS-80. One of my former bosses dubbed them “the Trash 80” because they were so unreliable.
Eventually, RadioShack quit the PC market in the 1990s after it was eclipsed by, well, everybody in the tech industry that you can possibly imagine.
The company’s niche in batteries, cell phones and electronics parts have also withered over time. Indeed, the highly competitive consumer electronic market is no picnic for bigger players such as Amazon.com, Inc. (AMZN) and Best Buy Co Inc (BBY).
Unfortunately, RadioShack hasn’t learned from its mistakes. Last month, it debuted a funny holiday ad featuring “Weird Al” Yankovic as his usual awesome self. Unfortunately, like the great Super Bowl commercial, it won’t do anything to head off the looming disaster facing RadioShack. It’s like putting lipstick on a pig.
If anyone is tempted to buy RadioShack stock, lie down for a little bit. Consult a doctor or member of the clergy if the feeling doesn’t go away, because there is no hope for RSH other than liquidation.
As of this writing, Jonathan Berr did not a position in any of the aforementioned securities.