NEW YORK (TheStreet) -- RadioShack (RSH) shares continued the week's upward trajectory on Friday, on volume that was more than seven times the stock's three-month average following continued investor optimism that the struggling electronics retailer could get a lifeline.
Rumors surfaced on Tuesday that Standard General, the same hedge fund that extended a $25-million lifeline to American Apparel (APP) last month, was working with RadioShack to create a financing package that would help it avoid bankruptcy, according to Bloomberg. It was unclear whether the lifeline would come in the form of debt or equity. The Bloomberg article also stated that Standard General was seeking to refinance a $250 million second lien term loan. Standard General owns about 7% of RadioShack's stock, according to Bloomberg.
Shares were surging 14% to $1.63 on Friday, the stock's fourth straight day of double-digit gains, even though no official announcement has yet been made. RadioShack lost $98.3 million in the three months ended May 3, and store sales declined 14% from the year-ago period. The Fort Worth, Texas-based company said in June that it closed 22 stores in fiscal 2015 and expects to close up to 200 underperforming stores -- far short of the 1,100 it had initially projected, after lenders had issues with the planned closings.
RadioShack did not immediately respond to a call seeking comment by TheStreet. A spokesperson for Standard General declined to comment.
Here's what analysts are saying about the speculation.
Anthony C. Chukumba, BB&T Capital Markets (Hold)
While we are loathe to comment on media speculation, in our experience where there is smoke there is fire, and we would characterize the jump in RadioShack's stock price the last few days as a raging inferno. We would consider any type of rescue financing as a positive development, particularly if it allows the company to aggressively close underperforming stores (as a reminder, RadioShack announced plans earlier this year to shutter 1,100 locations, only to be rebuffed by its creditors). That said, we will wait to see the terms of any new lending agreements before formulating a definitive opinion.
While a rescue financing package could potentially save RadioShack from having to file for bankruptcy in the near future, the company would not be "out of the woods" by any stretch of the imagination in our view. RadioShack would still face myriad issues (e.g., the slowdown in the wireless business, increased competition, secular declines in multiple product categories, the death of the do-it-yourself consumer electronics repair business, etc). In addition, we think Best Buy's ((BBY) -$32.24-Buy) recent cautious commentary on H2'14 (including for the wireless business) portends very poorly for RadioShack. Thus, we believe a refinancing may only serve to delay the company's ultimate demise.