NEW YORK (The Deal) -- RadioShack (RSH) is making a strong bid to become the U.S.'s most troubled retailer, replacing the likes of J.C. Penney Co. (JCP) and Sears Holdings (SHLD), as it reported dismal fourth quarter results Tuesday.
The company has become so troubled that private equity firms that specialize in distressed retailers had looked at investing and passed, sources said.
The electronics retailer saw its stock and bonds pummeled on Tuesday after revealing a comparable store sales decline of 19% year-over-year and a wider than expected operating loss of about $166 million.
The Fort Worth, Texas-based company also announced that it would close up to 1,100 stores, or about a fifth of its total locations, subject to the consent of its lenders under a 2018 credit agreement.
RadioShack notes dipped by 10 points to all-time lows, trading yesterday in the mid-sixties, but dropping today to the mid-fifties, according to data provided by Bloomberg.
Meanwhile, RadioShack's stock closed down Tuesday more than 17% at $2.25 per share.
The company's total liquidity at the end of the fourth quarter was about $554 million including nearly $180 million in cash and cash equivalents and nearly $375 million under its credit agreement maturing in 2018. That was down from a total of about $612 million at the end of the third quarter, including cash and cash equivalents of approximately $316 million and about $296 million available under a revolver that was to expire at the beginning of 2016.
That means the retailer went through roughly $136 million in cash in the fourth quarter, the crucial holiday season when retailers are expected to add cash to the balance sheet, while increasing the availability under its revolver by about $80 million from the new credit agreement.
Still, the company expects that liquidity will help the business survive through this year. CFO John Feray said on RadioShack's earnings call, in response to an analyst's question, that the company has no plans for a prepackaged bankruptcy as a way to get out of leases.
RadioShack's total debt as of Dec. 31, which matures between 2018 and 2019, was $614 million. The increase in its revolver and the debt are the result of a debt financing of $835 million provided in November by a consortium of lenders, including General Electric Co.'s GE Capital, CIT Corporate Finance, RBS Citizens NA and Salus Capital Partners LLC.
The financing included a $535 million senior secured asset-based revolving credit facility and a $250 million term loan, as well as a $50 million five-year FIFO. Collateral for the debt stretches across all the company's assets, a source said.
The November financing became necessary after private equity firms took a look at RadioShack last year, but decided against investing, two sources familiar with the situation said. In a situation similar to other retailers these firms had eyed ranging from now defunct Circuit City Stores Inc. to Best Buy Co., the potential private equity investors believed the retailer's business model had no long-term viability, the sources added.
The company did not immediately respond to requests for further comment.
Magnacca said in a statement, "Our fourth quarter financial results were driven by a holiday season characterized by lower store traffic, intense promotional activity particularly in consumer electronics, a very soft mobility marketplace and a few operational issues."
He went on to cite, however, sales growth in its new concept stores and the lift from its Super Bowl ad, which was ranked as one of that Sunday's best. But the new concept stores, however, may not be numerous enough to have a measurable impact. Only 100 new concept stores are planned for this year, in addition to a small number of new locations and relocations, out of the 4,000 or so that will remain after the closures take place, Magnacca said on the earnings call.
Though industry insiders have had nothing but praise for Magnacca, who they said could have had any number of retail positions after a successful turnaround as president of Duane Reade Inc. and its sale to Walgreens Co., the same people also said that he may now regret taking on RadioShack. The retailer is more troubled than he first thought, those sources said, and the turnaround is expected to be more difficult.
Still, Magnacca showed "a lot of guts," one person said, for choosing the RadioShack job as his first occupying the corner office.
Though plans to effect a turnaround were put in place last fall, the company still has to show operating results, a source said.
RadioShack also reported that revenue for the fourth quarter was about $935 million, down from roughly $1.17 billion during a similar period a year prior, while the company's operating loss was approximately $166 million, compared to positive operating income of $16 million the year before. The retailer had a net loss of about $191 million, compared to a net loss of roughly $63 million the year prior.
For 2013, RadioShack had revenue of $3.43 billion, compared to $3.83 billion the year before, while comparable store sales were down 8.8%. The company had an operating loss of $344 million whereas the year before it had an operating loss of $25 million. It had a net loss of about $400 million, compared to a net loss of nearly $140 million the year prior.