RadioShack Earnings Show Need for More Capital — but From Where?

Investors are looking at the numbers this morning, though, and they’re parsing the words of the company’s CEO:

For the past 18 months we have been working hard on our turnaround plan. While we are advancing on many fronts, we may need additional capital in order to complete our work. As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties. We are also working with our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords seeking to create a long-term solution. This may include a debt restructuring, a store base consolidation program, and other measures to make significant reductions in our cost structure. The details of a recapitalization have yet to be finalized, and we are reviewing several alternatives, some of which would require consent from our lenders.

An analyst at Wedbush Wednesday said that the company is on the brink of bankruptcy, and we noted a day earlier that there RadioShack’s creditors might be happier selling all its assets rather than continue trying to turn around a sinking ship. RadioShack’s plan to shut 1,100 stores, announced in March, was throttled by lenders to just 200 closures. That was a pretty clear hint that creditors were sorting out their positions in line for a RadioShack bankruptcy.

Since it reported fiscal first-quarter results in June, RadioShack’s market cap has dropped from around $150 million to around $94 million. Two-thirds of the company’s current assets are tied up in inventory, and Thursday morning RadioShack reported cash and equivalents of just $30.5 million. Why does the CEO think that creditors will want to wait and invest more when it is clear that the longer they wait and the more they invest, the less they’ll get?

RadioShack’s shares traded up about 3.5% in the premarket Thursday, at $0.96 in a 52-week range of $0.55 to $4.36. Thomson Reuters had a consensus analyst price target of $1.00 before the report.

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