Hope apparently springs eternal, even for a moribund, behind-the-curve retailer like RadioShack. Confounding many analysts, RadioShack Corporation (NYSE:RSH) shares soared another 30% on Thursday, moving as high as $1.60 a share in late morning trade. It boils down to investors (or should I say speculators) being willing to bet that the firm can round up new investors and give the venerable electronics retailer some breathing room for a turnaround.
The stock has now more then doubled following a Tuesday report from Bloomberg News that hedge fund and major shareholder Standard General is in talks with RadioShack management regarding methods to raise cash.
RadioShack was facing potential bankruptcy
Investors believe an infusion of fresh cash from more diverse investors may make it easier for the firm to undertake its turnaround plan. RadioShack management has been stymied by creditors when trying to close stores to try and stop nine straight quarters of losses. Without more cash soon, the electronics retailer was facing down a cash crunch by early 2015, according to Moody’s.
Furthermore, RadioShack lost $98.3 million in the quarter ending May 3, with same-store sales plunging more than 14%. The company tallied just $62 million in cash at the end of the quarter.
Statements from analysts
“As tough a battle as it’s going be to turn the business around, I won’t completely write them off yet,” opined Will Frohnhoefer, a special-situations equity analyst for BTIG. “The new capital could get them through the rough patch.”
Refinancing impending loans “will buy the retailer more operating flexibility,” mused Noel Hebert, an analyst for Bloomberg Intelligence. “Both Standard General and fellow shareholder BlueCrest Capital say RadioShack should close as many as 1,100 stores, a plan that was rejected by lenders given that closures would reduce its available collateral.”
However, a fresh infusion of cash and the flexibility to close more locations doesn’t guarantee a successful turnaround, points out Scott Tilghman, an analyst at B. Riley & Co. in Boston.
He says that store closings “are not the silver bullet. There is cost associated with closing stores. The challenge for them is being able to do that while at the same time righting the current business.”