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Back to Bad News for RadioShack

NEW YORK (TheStreet) -- Shares of troubled electronics retailer RadioShack (RSH) fell 5% Tuesday, following an article in the Wall Street Journal that said the company plans to close 500 of its 4,300 stores in the coming months.

The company has not yet responded to the report, which offered few details, including what stores will be shuttered.

The news sent RadioShack shares as low as $2.20 before they recovered some ground to close at $2.36.

The article comes on the heels of a minor victory for the company in the form of a well-received Super Bowl commercial that ran during Sunday's less-than-stellar game. The spot was an admission that the company's stores are stuck in the 1980s and are in desperate need of a major face-lift.

The positive reaction among investors gave shares a 3% boost on Monday, while the broader market was dropping sharply. Sunday's feel-good story, however, was quickly forgotten Tuesday, as the markets digested the latest news.

I see store closures as a positive, not a negative. The only way that RadioShack has a chance to survive is in a scaled-down form, not as a 4,300-store behemoth. For the past few years, the market has been conveying its view that the odds are stacked against the company surviving, and I expect more than 500 stores to close.

Investors may be bothered with the costs of the store closures and may have misinterpreted Sunday's commercial. RadioShack isn't in a position to update all of its stores, as the commercial may have suggested; it simply doesn't have the resources to do so.

Saving a struggling electronics retailer, whose best days are behind it, is a very tall order. It can be done, but the ride will be bumpy at best, and the execution must be near perfect.

The store retrofit is as much a part of that as the store closures are. RadioShack's management team -- including the new chief financial officer, John Feray, who came from Dollar General  (DG), and CEO Joe Magnacca, who has been on the job about a year -- has its work cut out.


At the time of publication, Heller was long RadioShack.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Heller, CFA,CFP® is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

  Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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