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RadioShack Up on Revised Store Closure Plan

Zacks Equity Research

The struggling American franchise of electronics retail chain RadioShack Corp. (RSH) withdrew its plan of downing the shutters of 1,100 unprofitable stores after two of the company’s major creditors decided against supporting the plan. As of now, the company will shut down only 200 stores. Following the announcement, the company’s shares jumped 4.3%.

In March this year, RadioShack had announced its intentions to close unprofitable stores after the company reported dismal results for the eighth consecutive quarter. The company had earlier stated that it was trying to obtain permission from its lenders to discontinue 1,100 stores under the 2018 Credit Agreement and 2018 Term Loan.

However, neither of the parties involved had managed to reach a final conclusion on the same at that point of time. At present, though RadioShack has decided upon shutting down 200 stores, it plans to continue its negotiation with the lenders on the proposed store closure plan.

RadioShack had undertaken 5 strategies to restructure its business model which included redefining the brand, revamping product assortment, reinvigorating stores, achieving operational efficiency and attaining financial flexibility. The proposed plan of closing down its underperforming stores was part of the business strategy to bring the company back on the growth track.

RadioShack’s core Consumer Electronics retail business is on a secular downtrend. Present-day consumers prefer making online purchases rather than visiting retail stores.

RadioShack currently has a Zacks Rank #5 (Strong Sell). In the last reported quarter, the company’s top and bottom line had missed the respective Zacks Consensus Estimate. More importantly, the company’s comparable store sales for operated stores and kiosks (stores and kiosks that have been operational for at least a year) had declined 19%.

We believe, until there is an improvement in comparable store sales, a drastic turnaround in business is impossible. RadioShack is also subject to stiff competition from retail giants like Amazon.com Inc. (AMZN), Best Buy Co., Inc. (BBY) and Conns Inc. (CONN).

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