How RadioShack Could Lose 90% of Its Value This Year

Douglas A. McIntyre

RadioShack Corp.’s (NYSE: RSH) shares traded at $0.33 Wednesday, down from a 52-week high of $2.79. One more tiny slip by management, lower same-store sales or ongoing fighting with its bond holders could push the shares low enough that the retailer will lose 90% of its value this year.

RadioShack’s prospects improved by a tiny margin Wednesday. According to Bloomberg:

RadioShack finding an unlikely ally in its efforts to stay out of bankruptcy: credit derivatives traders who amassed more than $25 billion of trades speculating how much longer it can keep paying its bills.

After a 60 percent surge this year, the amount of credit-default swaps tied to RadioShack is 28 times its debt, more than any other U.S. company. When the retailer’s biggest shareholder arranged $585 million of funding in October to help it survive the holidays, much of the money came from hedge funds wagering on the company to avoid default, said people with knowledge of the trading. Those included DW Investment Management and Saba Capital Management, the people said.

The benefits are likely to be short lived. The AP reports:

RadioShack is bringing in FTI Consulting as an adviser in the midst of another round of cost cuts as the troubled electronics retailer warned again last week that it may have to seek bankruptcy protection.

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The issue of who would benefit from a Chapter 11 filing is unclear. Salus, which loaned RadioShack money, said the retailer has violated the terms of that loan. Assuming Salus and its partners can get a judge to give them RadioShack’s assets, it is hard to imagine what they would do with those assets. RadioShack continues to fall apart at an accelerating rate. It reported for its most recent earnings:

  • Total net sales and operating revenues were $650.2 million, compared to $775.4 million last year. Comparable store sales were down 13.4%, driven by traffic declines and soft performance, particularly in the mobility business.
  • The operating loss was $114.1 million, compared to an operating loss of $128.6 million last year. On an adjusted basis, the operating loss was $106.4 million, excluding certain non-cash items of $2.6 million in impairments of fixed assets and $5.5 million in reserves in inventory, partially offset by $0.4 million in severance.

Earnings are more evidence that there is nothing to own, except perhaps some inventory. As a matter of fact, at the end of last quarter, that inventory was valued at $664 million. However, total long-term debt, excluding current maturities, was $841 million. If a bankruptcy judge cuts the value of the debt, the value of the inventory might give creditors a way to make money. Maybe.

The salvation of RadioShack is highly unlikely. However, someone must see a tiny value. But the stock continues to trade at multiyear lows, almost 90% lower this year.

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