NEW YORK (TheStreet) -- RadioShack (RSH) shares are struggling to stay above water and, with a potential delisting from the New York Stock Exchange hovering, the struggling electronics retailer likely has little time left to turn itself around against the backdrop of a difficult environment for consumer electronics, made worse by Amazon (AMZN) - Get Amazon.com, Inc. Report .
Shares have been below the crucial $1 mark since June 20, but buoyed by rumors of a potential lifeline at the end of last month, RadioShack's shares surged back above the $1 mark. On Tuesday, though, the stock dropped again below a dollar following Wedbush Securities analyst Michael Pachter's comment that a bankruptcy organization is "imminent."
RadioShack is set to report fiscal 2015 second quarter results on Thursday. Consensus estimates are calling for the Fort Worth, Texas-based company to report a loss of 66 cents a share on revenue of $736 million for the July-ending quarter, according to Thomson Reuters.
Earlier this year, RadioShack disclosed that it planned to close approximately 1,100 stores. RadioShack has roughly 4,400 stores in the U.S. and Mexico. However the company ran up against pushback from its lenders on the amount of stores it planned to close. The company has amended that number since then and plans to close up to 200 stores in fiscal 2015.
Shares of RadioShack are down 11% to 83 cents on Wednesday. The stock is down 78% over the past year. Here's more detailed information on what analysts are saying.
Michael Pachter, Wedbush Securities (Underperform; $0 PT)
In May, RadioShack announced that it was unable to successfully negotiate consent from its lenders under the 2018 Credit Agreement and Term Loan to close up to 1,100 stores. The terms offered by lenders were not acceptable to thecompany. RadioShack's operational decisions are now being vetted by creditorsand equity investors are no longer relevant to management decisions-thecreditors clearly are in control of the ship and, in our view, the ship is sinking. Thecredit agreement allows the closure of 200 stores per year or 600 over the life ofthe agreement. We believe a bankruptcy reorganization is imminent.
Reiterating our UNDERPERFORM rating and lowering our 12-month price target to $0 from $1 as declining CE (consumer electronics) sales and continued margin erosion will likely compel the company to enter bankruptcy in order to pursue its turnaround. Our price target reflects our expectation that creditors will force areorganization and wipe out RadioShack's equity.
No one is expecting any signs of a meaningful turnaround this quarter.
Most of the firm's proposed initiatives - shifting inventory and procurement, cutting selling and administrative costs by terminating or renegotiating large numbers of leases and changing hours, and investing in remodeled and refurbished prime locations - require a heavier use of cash up front, with the full savings to be realized later. This only works if there is a later.
We think the implied stability of RSH's largest vendors (phone service providers) would make a restructuring process easier to coordinate, but we think the most important numbers that investors need to focus on with these earnings are balance sheet cash and remaining revolver availability. Rather than hoping for the news stories about refinancings to come true, investors need to calculate how much sand is left in the hourglass.
TheStreet Ratings team rates RADIOSHACK CORP as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:
"We rate RADIOSHACK CORP (RSH) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 127.0% when compared to the same quarter one year ago, falling from -$43.30 million to -$98.30 million.
- The debt-to-equity ratio is very high at 8.46 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, RSH has a quick ratio of 0.51, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, RADIOSHACK CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$37.80 million or 323.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 63.51%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 177.14% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: RSH Ratings Report
--Written by Laurie Kulikowski in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.