The Golden Age of RadioShack in 2012?

Yes, RadioShack (NYSE: RSH) is another retailer declining in the face of online shopping. When fellow Fools Andrew Marder and Michael Lewis wrote their negative takes, they barely had to edit its recent quarterly report to make their bear arguments. But where there's a contrarian view, there can be outsized returns. So what are the reasons to tune in to RadioShack's stock? Could the company actually survive even though many believe it has already played its swan song?

Surviving
Before a turnaround can happen for the retailer, it must be able to survive in the near term. What are its chances? Well, it depends how well it does in the near term. The company has more than $500 million in cash and equivalents, and its next debt repayment of $375 million is due in August 2013. By suspending its dividend, which, strangely, executives felt comfortable enough doubling not even one year ago in 2011 from $0.25 to $0.50 per share, the company will save $50 million per year. This $50 million saved from dividends can help cover its interest expenses, which only total $31 million within the next year.

Beyond interest and debt, the company is contractually obligated to pay its leases and product and marketing agreements, which within the next year total $195 million and $316 million, respectively. While the company's credit has recently been downgraded to junk status, it still has $390 million available of a $450 million revolving credit facility through early 2016 to help it survive.

So obviously, if RadioShack's customer base doesn't desert the store entirely, it seems likely that the company can survive in the near term. And while it's no guarantee of anything, the recent insider buying by executives does give an investor comfort that the company at least doesn't expect to go bankrupt in the near term. Or the buying could prove how disconnected the executives are from reality, but this article is trying to make the favorable case.

Transforming
Next comes the difficult part for RadioShack. Sales have stalled, so can it pivot and bring back customers, or will it be a slightly smaller Best Buy (NYSE: BBY) , or slightly larger Best Buy kiosk? For an idea, I would usually turn to the annual report. However, the most recent annual report lists very little in strategic direction. In summary, CEO Jim Gooch basically says RadioShack will focus on cellphones and tying together its bricks-and-mortar stores with its website. Jim, welcome to the year 2000.

In the most recent conference call, however, Gooch enlightened us a little more. He spoke of a "significant brand refresh" that will help "contemporize our brand, and raise consumer awareness of our Mobility business." The advertising firm Grey New York is helping, which is the same firm famous for the E*TRADE (Nasdaq: ETFC) talking and stock-trading baby. For E*TRADE, that first Super Bowl ad increased unique visitors to its website 86% in the following week and increased applications for a brokerage account 19% compared to the average.

Gooch also discussed more training for store associates, which will help them better explain complicated phone plans, and upsell customers on accessories and warranties. The company established a franchise agreement for Southeast Asia and a joint venture for China while planning to open 50 stores in Mexico.

In terms of lease flexibility, CFO Dorvin Lively said the company has "generally over 1,000 leases coming due every year." RadioShack, as opposed to Best Buy, actually has fewer U.S. stores now, at about 4,500, than it did 10 years ago, at about 5,300. Best Buy has more than doubled its store count over the past decade from about 480 stores to 1,100.

The company also will work to improve its roughly 1,500 unprofitable Target Mobile centers by working with Target (NYSE: TGT) to optimize staffing and adding prepaid phones. Gooch says that even though the Target partnership hasn't met goals yet, both RadioShack and Target "remain very committed to this program."

Overall, if RadioShack is going to pivot to a more enticing model, executives are keeping it a secret. RadioShack's current path will lead them to be squeezed by cellphone makers, carriers, and Target. If you buy this stock, you should hope for a change in management's strategy, or simply a change in management.

A potential path
One such strategy could be finding a better niche, like GameStop (NYSE: GME) did. GameStop, although having a rough last year when its net income fell more than 16%, caters to a dedicated, enthusiastic gaming audience that offers a marketplace to trade in old games and devices that may take considerable effort to sell online. It also jumped into the online game distribution model to make sure it stays relevant for the new generation of gaming.

Perhaps I'm wrong, and mobile will be RadioShack's niche, but it seems to be too crowded of a space to survive.

Tune in or out?
Unlike my colleagues, I think RadioShack has a better chance than most believe. But it has to utilize its precious time to come up with profit-driving strategies. Add better strategy to a refreshed brand, and you could get another iconic business worth another century of profits.

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