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From Perennial (Rumored) LBO Candidate To Imminent Restructuring: How The Unmighty Radioshack Has Fallen

Tyler Durden's picture




 

There was a time when one couldn't spend an hour without some moronic rumor of a Radioshack LBO popping up. Those time are gone. Instead, as DebtWire reports, the rumor of a takeover has been replaced with the all too unpleasant reality of a corporate restructuring which may or may not end up in Chapter and which likely means the equity is all but wiped out. As DW reports the firm is set to listen to restructuring pitches from the usual restructuring suspects, which means unless someone is crazy enough to do another JCP-type deal (they aren't), the firm's debt is about to be substantially discharged. This usually means a full or at least partial wipe out of the equity tranche below it. "The move to hire a banker to explore a balance sheet fix comes as the struggling electronics retailer faces a string of maturities, escalating cash burn and bloated inventory levels, the sources said. RadioShack first engaged AlixPartners for operational help over a year ago, as previously reported by Debtwire."

Debt Wire has more on the fulcrum issues:

Most pressing on the capital structure front, the stressed borrower faces the 1 August 2013 maturity of its USD 216m 2.5% convertible notes. In 1Q13, RadioShack chipped away at the obligation by repurchasing USD 70.5m of the notes with cash on hand. Back in 3Q12, the issuer inked a USD 100m 11% second lien term loan due 2017 and a USD 50m Libor+ 450bps TL due 2016, both with agent Wells Fargo, to partially buy back USD 88m of the converts

 

While management has telegraphed it has the resources to address the convert, liquidity is a precious commodity given RadioShack’s cash burn trajectory. At 1Q13 ended 31 March, the issuer held USD 434.3m of unrestricted cash and had USD 384.9m available under its USD 450m asset based revolver due 2016, according to SEC filings.

 

The Texas-based chain has been the subject of investor scrutiny as it combats margin pressure due to increased competition from online retailer Amazon and big-box heavy hitter Wal-Mart, the sources agreed. During 1Q13, RadioShack’s revenue skidded 7% year-over-year to USD 849m, underpinned by a 5.7% decline in same store sales.

 

For the three-month period, EBITDA slipped to USD 5m from USD 30m generated in the prior year period, noted a sellsider.

 

At quarter-end, the issuer’s net leverage catapulted to 7.3x from 0.7x during the prior year period, the sellsider continued. Meanwhile, the electronics seller carries gross leverage of 18.7x based on LTM EBITDA of USD 38m and debt of USD 712m.

 

For FY13, the issuer is projected to book negative USD 5m of EBITDA, falling far short of the USD 63m recorded in FY12, the sellisder said. By comparison, the store franchise generated north of USD 260m in FY11. More bearish investors peg FY13 EBITDA at negative USD 25m and capital expenditures at USD 70m, added a buysider.

And while an imminent liquidity crunch is unlikely, the slowburn will mean that slowly but surely the firm's debt and hybrid securities will start ticking down to their fairer value... somewhere in the vicinity of 0.

RadioShack’s converts due in August are quoted at around par, said one of the sources. The company’s USD 325m 6.75% unsecured notes due 2019 last changed hands at 73.25 to yield 13.52%, down from around 80 in late May, according to MarketAxess.

Finally, those playing with falling knives and hoping for a big short-covering pop on any good news for the company that has already used up several lifetimes worth of bullish rumors: good luck.

 

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Thu, 07/11/2013 - 14:16 | 3742189 Id fight Gandhi
Id fight Gandhi's picture

I don't even see how that place exists. What do they even sell?

Thu, 07/11/2013 - 14:18 | 3742196 clones2
clones2's picture

What's a radio?

Thu, 07/11/2013 - 14:24 | 3742227 Ahmeexnal
Ahmeexnal's picture

Video killed the radio star.
Should have renamed to VideoShack decades ago.

Thu, 07/11/2013 - 14:25 | 3742233 clones2
clones2's picture

"We never saw this coming..."

Thu, 07/11/2013 - 15:37 | 3742524 MagicHandPuppet
MagicHandPuppet's picture

If RadioCrapShack shuts down, where in the world am I going to pay 3 times the price that other stores charge for batteries and cables??  This is a tragedy for overspenders everywhere!

Thu, 07/11/2013 - 16:25 | 3742705 CPL
CPL's picture

...you mean this battery club card is valueless!!!  

 

Thu, 07/11/2013 - 16:56 | 3742813 astoriajoe
astoriajoe's picture

I loved that as a kid. It did get me in the store to look at other products.

Thu, 07/11/2013 - 22:07 | 3743735 phyuckyiu
phyuckyiu's picture

Let me fire up my TRS-80 Model III and code some stuff in BASIC. That'll help them out. Anyone have a 1500 Baud modem lying about?

Thu, 07/11/2013 - 14:20 | 3742213 dwdollar
dwdollar's picture

Obsolete cell phones and electrical components marked up +10000%

Thu, 07/11/2013 - 14:51 | 3742332 seek
seek's picture

Just cell phones, they're pretty much out of electronic components these days.

Thu, 07/11/2013 - 21:33 | 3743629 Long-John-Silver
Long-John-Silver's picture

I build and repair specialized electronic devices. Before Radio Shack switched to Cell Phones I used them as my parts warehouse. When orders for devices came in or needed repairs I would make a list and call an order in to my local RS. I would order a few items from mouser.com but those were rare instances. When Cell Phones moved in the manager and associates were too busy selling Cell Phones, signing people up with providers, and selling them accessories to worry about stocking and selling electronic components. I gave up and purchased parts bins and stocked them with parts from mouser.com and digikey.com. I should have done that years before RS "helped me" make that choice. I have dropped by a RS Store in the mall and discovered they had purchased new parts bins and were now attempting to get back into selling parts and components. Most of this renewed activity was centred around Arduino microcomputers and associated modules and kits. I couldn’t imagine anyone actually buying that stuff at full retail RS prices. I asked an associate about the popularity and amount of sales. He told me they could not sell that stuff at all. Everyone ordered that stuff from internet sites at near wholesale prices.

Thu, 07/11/2013 - 14:21 | 3742220 NoDebt
NoDebt's picture

I bought a soldering iron there once.  A very pleasant experience, actually.  Not sure why I've never been back.

Oh yeah, they don't sell a damned thing I need.

Thu, 07/11/2013 - 14:39 | 3742279 Tijuana Donkey Show
Tijuana Donkey Show's picture

They should do a merger with Best Buy, it's a winner!

Thu, 07/11/2013 - 14:57 | 3742354 Cman5000
Cman5000's picture

 Best Buy, Radio Shack along with Kmapart are Rearanging the deck chairs on the Titanic. How these companies are still around is beyond me very few people i know shop at these places.

Thu, 07/11/2013 - 17:43 | 3742980 xtop23
xtop23's picture

Somebody call Romney..... I'm sure he can fix everything :p

 

Thu, 07/11/2013 - 14:21 | 3742197 Dr. Engali
Dr. Engali's picture

Have you been in a Radio Shack lately?  I wander through on occasion just to pass the time while my daughters are looking at clothes. They don't offer anything that you can't buy at a kazzillion other places. It amazes me they have been around this long.

Thu, 07/11/2013 - 14:25 | 3742231 CrimsonAvenger
CrimsonAvenger's picture

Even their CEO has no idea how they keep their doors open - http://www.theonion.com/articles/even-ceo-cant-figure-out-how-radioshack-still-in-b,2190/

(And yes, it's the Onion - but prescient, from six years ago)

Thu, 07/11/2013 - 14:36 | 3742265 NoDebt
NoDebt's picture

Great Onion article.  Well worth the 2 minutes it would take to pop over and read it.  It could have been written yesterday.

"You think people would have enough strobe lights and extension cord adapters, but I guess not."

"I tried to focus on the brand's strengths but I honestly don't know what they are."

 

Thu, 07/11/2013 - 15:02 | 3742376 Dr. Engali
Dr. Engali's picture

Pretty funny, and accurate too.

Thu, 07/11/2013 - 14:18 | 3742202 Tenshin Headache
Tenshin Headache's picture

Worst change in strategic direction, ever.

Thu, 07/11/2013 - 14:24 | 3742228 ebworthen
ebworthen's picture

Exactly.

They abandoned their traditional customer and whored themselves out to cell phone companies.

I'm surprised they didn't pick up Tim Cook for CEO and Ellen DeGeneris for spokesperson after they left JCP.

Thu, 07/11/2013 - 14:31 | 3742251 lakecity55
lakecity55's picture

+1000, they dumped the loyal customer base and...here is the result.

Before they morphed into pod people, I was there 1X week buying parts.

Tools.

Thu, 07/11/2013 - 14:55 | 3742333 RockyRacoon
RockyRacoon's picture

I'll miss the good ole days when I would buy components for circuit board building projects.  Resistors, capacitors, wire, connectors, all sorts of components.  Not any more.  Can't even get the assorted goodies needed for soldering and such.   Tandy used to sell wood burning and leather tooling kits... remember those days?

When I was in the Air Force (back in the early 1970s) we'd run out of a particular component in bench stock (parts in bins for our electronic repairs).   All the components had the actual prices that the Air Force paid for the items; the idea was to show us how serious wasting parts was.  When we were out of a few parts, we'd make a run to Radio Shack for what we needed.   Resistors that we got at Radio Shack for 12 cents were priced in bench stock at $5 to $7 each.  We just paid cash from the coffee fund for what we needed.  Same stuff at outrageous taxpayer expense.  You've heard of the $50 hammers and $200 commode seats... this was true of everything.

Run a Tylenol through the bureaucracy of the medical system and you get the same results.

Thu, 07/11/2013 - 14:29 | 3742244 NoDebt
NoDebt's picture

I'm not sure what direction they could have taken that would have saved them.  They were always a dumpy little mall store that catered to the electronics hobbyist which would be who, exactly, these days?  I mean, where do you go from there?

Thu, 07/11/2013 - 14:43 | 3742293 dwdollar
dwdollar's picture

The "Maker Community" might be one niche market...

Radio Shack doesn't even try. Management doesn't know the first thing about its products or who might find them useful. Just another mismanaged American corporation who should have changed or died long ago, but thanks to Alan and Ben, is a profitless zombie.

Thu, 07/11/2013 - 14:56 | 3742351 seek
seek's picture

And it's a healthy niche. I suspect the reason SparkFun has done so well (three-year growth pushing 300%, $30M in sales in 2012) is thanks to RS imploding.

Thu, 07/11/2013 - 14:20 | 3742211 monopoly
monopoly's picture

They are gone. Have not been in a RS in over 15 years. Just outdated and not needed. Industries come and go. They are toast.

Thu, 07/11/2013 - 14:28 | 3742240 Bad Attitude
Bad Attitude's picture

Twenty years ago, i was a regular Radio Shack customer. Any more, I go into Radio Shack once every other year. They no longer sell anything I want to buy.

Thu, 07/11/2013 - 14:20 | 3742214 negative rates
negative rates's picture

But the strip malls are'nt under water?

Thu, 07/11/2013 - 14:21 | 3742218 Yen Cross
Yen Cross's picture

  "Radio Shack" should do a merger with "Geek Squad".  " Geek Shack ®"

Thu, 07/11/2013 - 14:25 | 3742234 NoDebt
NoDebt's picture

Or they could merge with Southwest Airlines.  Their ticker could be "LUV SHACK"

 

Thu, 07/11/2013 - 17:29 | 3742940 CrockettAlmanac.com
CrockettAlmanac.com's picture

Now do Rock Lobster.

Thu, 07/11/2013 - 14:22 | 3742223 Flakmeister
Flakmeister's picture

The patient appears to have died before it could be looted and euthanized....

Thu, 07/11/2013 - 14:24 | 3742230 Dubaibanker
Dubaibanker's picture

UST Yields go up, Radio Shack goes down. Is there a correlation here? :)

Thu, 07/11/2013 - 14:29 | 3742249 1000yrdstare
1000yrdstare's picture

I need parts for my HAM!!!!  don't you close dem doors!!!

Thu, 07/11/2013 - 14:34 | 3742262 dwdollar
Thu, 07/11/2013 - 14:31 | 3742253 kchrisc
kchrisc's picture

Sad.

When I got into electronics I got my first components there. However, their selection was so limited and so expensive that I was forced to use EBay.

Most of the people were nice, even the Shaniquas, but pricing and selection just doomed them.

Thu, 07/11/2013 - 15:14 | 3742420 Agent P
Agent P's picture

I think what doomed them was the fact that electronics in general went from being expensive high quality items worth fixing to cheap pieces of crap that were easier to justify replacing with even cheaper pieces of crap when they broke.  That trend tends to cause a fall off in component sales.  That's why they started trying to make a go of it by selling cell phones and Chiclets...it's a good thing no one else was/is doing that!

So long Radio Shack...just like my first girlfriend, you were a lot of fun for me...back in the 80s!

Thu, 07/11/2013 - 15:24 | 3742465 W74
W74's picture

Lol, even the Shoniquas!!!

Oftentimes when I have a bad customer experience it's because of a Shoniqua who can't compute the links that make the chain between my wallet and her paycheck...and ugh the attitude, like it's my fault they have to actually do something for a moment!!!

Thu, 07/11/2013 - 14:32 | 3742258 Seasmoke
Seasmoke's picture

Anyone who ever walked into a Radio Shaq, should have bought a $10 cellphone and called their broker and shorted it to ZERO. 

Thu, 07/11/2013 - 14:33 | 3742260 adr
adr's picture

How many times have we seen this in the last four years? A dead company who manages a 100%+ stock gain from the Chapter 11 call. 

If you want to gamble, a near 100% chance of bankruptcy has been the most bullish news of all.

Thu, 07/11/2013 - 14:42 | 3742290 gjp
gjp's picture

And looking at other cash burning companies, Amazon just hit $300 ($137b mkt cap).

Thu, 07/11/2013 - 14:44 | 3742291 22winmag
22winmag's picture

RS is easily one of the worst-run retail establishments in the history of retail establishments. RS was running around 20% below the retail index for much of the 90's and early 2000s.

 

RS is also a poster child for former greatness gone south, and for decent commission-based sales jobs morphed into minimum wage clerking.

Thu, 07/11/2013 - 14:44 | 3742306 Joebloinvestor
Joebloinvestor's picture

Anyone remember shopping at RS and being asked for information even though it was for a cash sale?

My information has it that it was the result of trying to find the unibomber.

Thu, 07/11/2013 - 15:11 | 3742411 world_debt_slave
world_debt_slave's picture

Radioshack is so 1980's

Thu, 07/11/2013 - 15:20 | 3742450 W74
W74's picture

Can anyone tell me why I see people in these cell phone stores (and Radio Shack essentially is one) all the time?  Why?  I've only ever had two phones and the first one lasted 9 years.  What are these people customering?  Is having the "latest" gadget every 6-12 months really that important?  Blows my mind.

Thu, 07/11/2013 - 15:33 | 3742509 Agent P
Agent P's picture

I'm convinced that Apple pays people to browse in their stores.

Thu, 07/11/2013 - 16:31 | 3742732 conspicio
conspicio's picture

I am certain the Board appreciates Lee Applbaum's recommendation to go whole hog on his bromance with Lance Armstrong and his teammates. Essentially, at Lee's knowing or unknowing recommendation to back that team, Radioshack funded a massive doping program and the Board was none the wiser.

 

Some days you do the fucking, somedays you get fucked. It could be said Lee wanted it both ways, that kinky bastard.

Thu, 07/11/2013 - 17:20 | 3742900 NoWayJose
NoWayJose's picture

As others have said, there isn't much at Radio Shack that you cannot find in many other places at lower prices. What is sad is that RS used to be staffed by people with knowledge of electronics and they used to carry odd cables and parts. When they switched to generic mall clerks and the same products as other retailers - they were doomed. It's sad in some ways because American youth will never learn 'electronics' - thus those jobs now sit in China. It's a bit like seeing libraries fade away as real books get replaced by eBooks.

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