New York — RadioShack’s troubles continue to mount as it spars with lenders and its losses grow. While the electronics company doesn’t plan on going down without a fight — detailing its latest round of cost-cutting — its CEO said there’s no assurance it can put into place a long-term solution to stay afloat.
The company reported widening losses and a decline in sales for the 11th consecutive quarter on Thursday.
RadioShack, the ubiquitous seller of batteries and obscure electronic parts, has tried to find its way as online competition has grown fiercer. The Fort Worth, Texas company’s explosive growth exacerbated those problems and it has become a central issue in its fight with lenders as it tries to close hundreds of locations.
RadioShack said in March that it planned to close up to 1,100 U.S. stores, trimming the total to just over 4,000. But it backed away from that aggressive plan two months later under pressure from lenders and vowed to find other ways to cut costs, including more limited store closings.
That fight is ongoing.
Last week, Salus Capital Partners claimed that RadioShack had breached covenants on a $250 million term loan and asked the company to prepay some of its debt, along with other fees. RadioShack disputed the claim, calling it “wrong and self-serving.”
CEO Joseph Magnacca said specifically Thursday that the company continues to face challenges from its term loan lenders, but that it has been backed by revolving credit lenders.
The chain is working with those lenders to close additional stores, sticking to its goal of 1,100, but Magnacca laid out other cost-cutting plans Thursday that would buy the company time and hopefully drive growth.
“For RadioShack to succeed, we need to first right size our cost structure,” he said.
To that end, Magnacca said Thursday that RadioShack would boost earnings by more than $400 million annually by changing store hours and staffing, altering overtime practices and cutting the number of its field managers by 50 percent.
Magnacca said RadioShack has already lowered its headcount through attrition and through other departmental realignments to save $7.3 million annually. New staffing reductions will save an additional $18 million in early January and total reductions in its work force are expected to lower corporate costs by more than 30 percent.
But RadioShack doesn’t have a lot of time to turn things around. In September the company warned that it might need to file for Chapter 11 bankruptcy protection. A month later, it hired former Treasury Department adviser Harry J. Wilson to serve as chief revitalization officer.
Chief Financial Officer Holly Felder Etlin said during a conference call Thursday that RadioShack is preparing for a potential rights offering early next year as part of its ongoing recapitalization. It’s also continuing to talk to a number of parties about additional sources of capital.
“We know that coming to a long-term solution will be difficult and our ability to get there will be significantly affected by our performance during the critical holiday period,” Magnacca said.
For the period ended Nov. 1, RadioShack lost $161.1 million, or $1.58 per share, which was much worse than the per-share loss of $1.04 that analysts had expected, according to FactSet. It’s also a bigger loss than last year’s $135.9 million, or $1.35 per share, during the same period.
Revenue dropped to $650.2 million, hurt by challenges in its postpaid mobility business. The performance missed Wall Street’s estimate of $717 million.
Sales at stores open at least a year, a key indicator of a retailer’s health, tumbled 13.4 percent on declining traffic and softness in its mobility business. This figure excludes results from stores recently opened or closed.
RadioShack’s stock fell 4 cents, or 7.3 percent, to 51 cents in afternoon trading. Shares traded at 30-year lows earlier in the day.
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