Has Even RadioShack's CEO Given Up on a Turnaround?
Analysts and critics of RadioShack have glumly predicted its demise for years, but the electronics retailer doggedly turned aside the worst by, if nothing else, the dint of perseverance. After yesterday's shareholder meeting, though, even the Shack's CEO has apparently put aside his rose-colored glasses and admitted the future is much bleaker than has been previously allowed.
Revenues continue falling each quarter, down 20% in the fourth quarter, twice as bad as the 10% drop in the third. Worse, comparable sales at stores open for a year or more -- an important retail metric because it gauges growth (or contraction) based on already existing stores, not new ones opened -- plunged 19% in the year-end quarter, more than double the 8% decline in the third. Other than a meager 1% increase in comps seen in the second quarter because RadioShack had been dumping merchandise at fire-sale prices, which compacted margins, it hasn't had a positive showing in two years.
Since taking over last February, CEO Joseph Magnacca steadfastly touted the electronics retailers chances of turning things around, unveiling new concept stores, and attracting new financing to keep it functioning. While I wasn't sold on how heaping more debt on the troubled retailer was actually a good thing, it was otherwise viewed as a positive development that would keep vendors shipping their goods to the Shack knowing they'd likely still be paid.
Yet the new debt burden came with strings attached and those pulling them may have broken Magnacca's resolve.
Part of the CEO's turnaround plan was closing 1,100 underperforming stores over the course of a year, and though also skeptical of the plan to remake the remaining ones as mini-Best Buys featuring even more prominent cell-phone displays that are now serving as a drag as everyone began touting mobile as their savior, the need to cut costs was obvious. The only hitch was the banks wouldn't allow it.
I don't know if we can overcome this impasse, but we'll continue to work at it.
--Joe Magnacca, CEO, RadioShack
RadioShack's new round of financing limits the number of stores it could close in any one year to around 200 before it has to get lender approval, and the banks weren't too keen on slashing the electronic store's source of revenues that would be key to them being repaid. As a result, what Magnacca wanted to do in one year, must now be strung out over several, and for a smaller number. That apparently has him worried.
At RadioShack's annual investor meeting, Magnacca told shareholders, "I don't know if we can overcome this impasse, but we'll continue to work at it." Sure, it shows the same dogged determination he's been displaying all along, but there's a certain resignation to the fact he's being forced to fight with one hand tied behind his back.
I've already suggested Radio Shack's future lies not with cell phones, which have become commoditized, but rather by reaching back into its past and fueling the ambitions of the maker revolution. Not just cutting-edge technology like Arduino microcontrollers and Raspberry Pi minicomputers, but 3-D printing, too, where both the hardware and providing services, like in-store printing, could revitalize interest. That's what should be front and center when you walk into a Shack, not yet another kiosk pushing multiyear phone contracts.
RadioShack's CEO may not have given up all hope of a recovery, but it's clear the bright future he was once talking about has dimmed considerably.
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The article Has Even RadioShack's CEO Given Up on a Turnaround? originally appeared on Fool.com.Rich Duprey 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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