RadioShack is treading water, fiscally speaking, as it considers its future options. The company faces sinking sales and plummeting losses as it seeks to execute its turnaround strategy.
For the company’s second quarter ended Aug. 2, 2014, sales dropped 22%, to $673.8 million, compared to $861.4 million for the same period last year. Comparable store sales sank 20.0% driven by traffic declines and soft performance in the mobility business.
RadioShack CEO Joe Magnacca addressed the current situation during a Thursday conference call, while the possibility of filing for bankruptcy looms large for the company.
“It’s clear that the current pace of our turnaround is simply not fast enough to address our near-term liquidity needs,” Magnacca said during the conference call. “This is a fact despite the steady progress we are making with our strategic initiatives. Every day we see consumers responding positively to the key elements of our turnaround strategy, such as the actions we have taken on reinvigorate our store experience, revamping our product assortment, and creating a stronger inventory position. But we know we need additional financial flexibility to move ahead with our goals.”
As a result, Magnacca said the company is “actively exploring” options for restructuring its balance sheet and is in advance discussions with a number of parties
“We are in the process of working with our key financial stakeholders, including our existing lenders, bond holders, shareholders and landlords to create a long-term solution that would potentially involve a comprehensive recapitalization,” he explained. “This may include a store-based consolidation program and other measures to make significant reductions in our cost structure in order to provide the additional liquidity and time necessary to see the effect of our turnaround strategy.”
Magnacca said the details of that initiative have yet to be finalized.
“Let me emphasize there is no predetermined outcome to this work,” he said. “Our highest priority is working on a solution to maximize the value to all of our stakeholders. Perhaps for obvious reasons, we will not be in a position to provide details on our recapitalization work while it’s underway. As a result we will not be having a Q&A session today. Our goal is to complete our work as soon as possible so that we can focus all our attention on executing our business plans.”
Magnacca said the company’s second-quarter performance didn’t reflect the “meaningful progress we are making on several fronts.”
He addressed the business in two distinct platforms: Mobility and retail.
“I’d like to start with our retail business, which represents approximately half of our sales, and I am pleased to say we’re making progress and during the quarter we trended in the right direction,” he said. “In fact, comparable store sales continued to improve during the quarter as a result of our focus on in-stock performance, greater product innovation and better customer service. That trend is continuing into the third quarter and I am proud to say that innovation has become part of the RadioShack DNA; a far cry from where we were before our turnaround efforts began.”
Significant progress has been made in inventory management, Magnacca said.
“There is more work to be done, but retail is where we see the most significant progress being made,” he said. “In that context, operational efficiency is an absolute imperative and we have continued to successfully reduce cost across our business with a particular focus on removing expenses that don’t impact the customer experience including cutting discretionary expenses in our corporate office. We’re also realizing benefits from our centralized sourcing and supply chain efforts that we discussed on our last call. Importantly, we continue to drive improvements in our on-time delivery and further cost savings in products we source through our highly valued and efficient global sourcing operation which as you know are primarily private brand products.”
Magnacca said RadioShack has “been re-centering on the performance of our private brands. We’ve added more private brand options in areas like portable sound and power thus deepening our penetration of private brand in our stores.
We see demand in this area trending in the right direction with gains each month through the quarter and we are seeing that trend continue. At the end of the day it’s all about the customer experience and to that end we are extremely focused on executing our comprehensive store based consumer centric turnaround strategy.”
Magnocca said the company’s concept stores represent the future of RadioShack’s retail footprint.
“They continue to show positive sales performance as the modern design and interactive experiences they offer drive new traffic,” he explained. “For example, our speaker wall continues to drive year-over-year sales of portable speakers into the triple digits along with our highly successful interactive displays for headphones and tablets. These stores are outperforming the chain and we continue to focus on operational execution, growing sales, and driving margin rate improvement.”