Amidst another quarter of profit losses as well as fallen revenue, Radio Shack has confirmed that if it is unable to find a buyer, or restructure its debt, it might be filing for Chapter 11 or Chapter 7 bankruptcy. This comes just a few days after a Wall Street analyst cut the electronics store’s price target to zero with warnings of impending bankruptcy.
Falling Numbers
RadioShack is reporting $673.8 million in second-quarter sales. This time last year it had $861.4 million in sales. Sales at comparable stores plummeted 20%. And net earnings were also at a net loss: $119.4 million. That’s more than double the $51.1 million loss that had been reported during the second quarter of 2013. The figure works out to a per-share loss of $1.35.
Turnaround Plan
“For the past 18 months, we have been working hard on our turnaround plan. While we are advancing on many fronts, we may need additional capital in order to complete our work,” said RadioShack CEO Joseph Magnacca. “As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties.” And the 10-Q the company filed with the SEC made it even plainer: “If acceptable terms of a sale or partnership or out-of-court restructuring cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code.”
Chapter 11 and Chapter 7
Filing a Chapter 11 bankruptcy would allow RadioShack to restructure the company’s debt to creditors. A Chapter 7 filing for the company would require it to sell off its assets.
“RadioShack’s operational decisions are now being vetted by creditors and equity investors are no longer relevant to management decisions — the creditors clearly are in control of the ship and, in our view, the ship is sinking,” said Webbush analyst Michael Pachter. He gave the struggling retailed a $0 price target. “We believe a bankruptcy reorganization is imminent.”
Source: Forbes, In Quest For More Capital, RadioShack Warns Of Bankruptcy, September 11, 2014