) suffered a serious setback in its turnaround efforts and
consequently the stock price tumbled a significant 16.5% to
$1.41. The company's difference in opinion with its lenders
related to the closer of RadioShack stores is the primary reason
behind this critical situation. Disagreement between management
and its lenders about the number of RadioShack stores to be
closed delayed the turnaround process.
RadioShack currently operates 4,300 stores in the U.S. The
company has decided to close 1,100 stores as these outlets are
generating suboptimal financial results. However, the company's
credit agreement allows the closer of just 200 stores without the
approval of its two major lenders, namely, Salus Capital Partners
and GE Capital.
RadioShack's decision to go ahead with the store shut down
without seeking the approval of these lenders has aggravated the
situation. Management is currently targeting the close down of
just 200 stores. Meanwhile, some lenders opined that as many as
2,000 stores can be closed. Lenders are also trying to negotiate
for part of the proceeds from the closing of the stores as the
repayment of their loans.
In the last seven months the stock price of RadioShack has
plummeted nearly 68%. Consumers now prefer purchasing online to
visiting retail stores. Declining foot traffic has severely
affected RadioShack's business. Most of the consumers prefer
tablets and smartphones, which are less profitable for the retail
industry. The core retail businesses of RadioShack, namely, the
consumer electronics (including digital TVs, digital music
players and digital cameras) platform continues its free
Moreover, comparable store sales for the company-operated
stores and kiosks (stores and kiosks that have been operational
for at least a year) were down 19% in the last reported quarter.
Importantly, core businesses have some material effect on the
Wireless business. Core businesses indirectly drive wireless
sales through increased foot traffic. Most of the customers who
entered RadioShack stores intending to buy core products were
generally attracted toward its latest wireless offerings.
Furthermore, RadioShack is facing intense competition from
larger rivals like
Best Buy Co. Inc.
Wal-Mart Stores Inc.
). Best Buy is gradually rolling out small mobile stores. Best
Buy plans to open 600 to 800 stores within 5 years, which in
turn, will negatively impact RadioShack's market share.
RadioShack is also facing stiff competition from online retailer,
). RadioShack currently carries a Zacks Rank #5 (Strong
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