Is This RadioShack's Last Christmas?

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Earns Radio Shack
Al Behrman/AP
It seems as if the company that's been providing batteries and power adapters for decades is starting to run out of juice. RadioShack (RSH) is hitting new all-time lows this week, and it's going to be a challenge for it just to stick around beyond this holiday shopping season.

The chain of small-box strip mall shops that specialize in consumer electronics can't seem to get anything right these days. Store-level sales continue to slip. Losses continue to mount. Store closures and pink slips are the norm. With creditors running out of patience, it could mean that RadioShack is running out of time.

Another Step Down

RadioShack posted another brutal quarter late last week. Sales fell by more than 16 percent relative to the same period a year earlier, fueled partly by shuttered locations but mostly by a 13.4 percent drop in comparable-store sales over the past year.

The biggest drag at RadioShack is its wireless offerings. The company took a big gamble a few years ago, transforming its stores from a place for locals to grab small consumer electronics items to one that emphasizes mobile phone services from most of the leading carriers. RadioShack figured that it could fare better than the stand-alone shops of individual carriers by having a one-stop destination where customers can comparison-shop across the different providers. This was also the strategy that Best Buy (BBY) was taking on when it began to open smaller Best Buy Mobile shops.

It hasn't worked. RadioShack still devotes shelf space to many of the traditional retail consumer electronic products it used to carry. That segment is holding up relatively better, but we're still seeing negative sales growth there.

The Iffy Road to Merry Christmas 2015

RadioShack has started to remodel some of its stores. The extreme makeovers are paying off. Comparable-store sales at those stores are also negative, but they're holding up a lot better than the traditional format. The challenge for RadioShack is to see if it can invest in the remodeling efforts without going out of business first.

RadioShack has a financial problem. It is generating negative cash flow, and mounting losses mean that creditors are going to have to decide if they want to follow the chain down this rabbit hole. The chain is down to $62.6 million in liquidity as its long-term debt has ballooned to $841.5 million. This would be a thorny ratio if this were a profitable company, but it could be downright fatal for the profit-challenged entity that RadioShack has become today. It hasn't posted a profit since 2011, and analysts don't see that changing anytime soon.

The retailer knows that its days are numbered. On Tuesday it introduced its third chief financial officer since September, hiring an advisory firm to guide it through this difficult process. Filing for bankruptcy appears to be the only way out, but that in and of itself wouldn't mean the end of RadioShack. Many retailers have filed for bankruptcy reorganization, bouncing back with a second wind and stronger balance sheet. However, with RadioShack's relevance continuing to fade with consumers in an era of digital delivery and cheaper online solutions, it's hard to fathom the chain itself being around for too much longer.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 your best investing year ever? Check out The Motley Fool's free report on one great stock to buy for 2015 and beyond.
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