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The 5 Dumbest Things on Wall Street This Week: July 19

1. Radio Shaky

Here's what we think about Radio Shack (RSH) and all the flak it's been taking over the past week:

When the world as we know it comes to an end, whether by rising oceans, nuclear missiles or massive meteors, and the human race is no more. And cockroaches become the last living creatures to roam the planet earth, scurrying through civilization's rubble. Those cockroaches will still be able to shop at Radio Shack and choose not to.

OK. OK. We're kidding. Radio Shack probably won't outlive a nuclear holocaust. However, the nearly century-old electronics retailer once again showed its survival skills after a Debtwire report last Thursday said it was seeking financial advisors in the face of looming debt maturities and rising inventories. Shares of the Shack sank over 20% to $2.18 on the report, which cited unnamed sources, before the company officially responded the following day.

"Like many companies, we have discussions with investment banks from time to time to help us evaluate ways to further strengthen our balance sheet and manage it efficiently. That has been the sole focus of these discussions," the company officially stated last Friday, causing its shares and bonds to bounce back.

Ah, the old "Nothing to see here, folks!" line. That really is one of our favorites here at the Dumbest lab.

Unfortunately, that's exactly what customers say on the odd occurrence they step into one of the Shack's 4,300 stores. In fact, most are still amazed that they are still seeing a Radio Shack at all considering the damage (AMZN) and Best Buy (BBY) have done to its business.

To reinforce the point that the Shack is not under attack from creditors, recently named CEO Joe Magnacca told CNBC that he's "not at all concerned" about an August 1 debt payment because "we can pay that off in cash."

Which it can. RadioShack had $434.9 million of cash and cash equivalents as of last spring, more than enough to meet its $213 million in current outstanding debt. And we're sure it will be able to refinance or borrow as much as it needs because Wall Street -- like Tony Soprano -- loves lending to troubled companies.

The problem is that Magnacca needs this cash to transform the stores and reinvigorate the brand, which he has been trying to do, even somewhat successfully. But as Ron Johnson learned at another iconic American retailer JC Penney, it's tough to remodel your stores and make Wall Street happy at the same time.

Johnson, of course, made us very happy. He was an all-star in our eyes, making frequent appearances on the Dumbest list until he eventually had to go. JC Penney could soon follow if things don't turn around soon. The only thing keeping Penney stock in double digits is the fact that a quarter of its shares are sold short, making it susceptible to a squeeze.

Similarly, Radio Shack shares are cushioned less by its CEO's platitudes than the nearly 40% of its float sold short.

Not that the Shack is going anywhere. Not even when the cockroaches are gone.

-- Written by Gregg Greenberg in New York

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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RSH $0.31 12.76%
BBRY $6.86 0.00%
HSII $18.43 0.00%
MSFT $49.78 0.00%
SCI $26.92 0.00%


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