RadioShack Shorting Out

Jacob Harper |

Shares of RadioShack (RSH) fell sharply on April 17 after it was revealed the chain had run into problems with its plan to close over 1100 stores nationwide in a broad cost-cutting measure. The planned store closures must be approved by the store’s creditors, who have balked and exposed an internal squabbling that continues to stymie a much-needed turnaround.

Concomitantly, the short float on Radio Shack has remained high with 37.29 percent of the float is currently held by short sellers. The RadioShack bears have been rewarded handsomely, as a late-year short squeeze in late 2013 has been completely erased with an exceedingly poor performance this year.    

The retailer currently has around 4,300 locations. While they are seeking to cut costs by closing 1,100 stores, some of the company’s creditors reportedly want to trim even more with the most extreme plans calling for over half of current stores to be shuttered.

RadioShack can only close up to 200 stores at a time without gaining approval. So, for the time being, they are at a standstill and continuing to hemorrhage money.

The last earnings report for RadioShack was a disaster, with the company losing $191 million in that quarter alone. This was especially troubling considering the report covered the all-important holiday shopping season, usually a boon for retailers.

Opinions vary on to how RadioShack can recover, if that is still possible at this point. Industry analyst Jeff Kagan argues the correct path is one of reinvention, closing as many small storefronts as possible while opening up fewer, larger retail outlets and embracing online sales. This seems to be the path RadioShack’s creditors’ favor.

However, that about-face would be a major gamble, one its leadership might be loathe to take this late in the game. For while RadioShack is certainly not out of it entirely, they are playing from a defensive position and probably only have one shot to really turn it around. Once the stores are closed, they can’t exactly be reopened like nothing happened. They certainly need to choose their shot wisely.    

But for the time being, the clock is ticking and they‘re not taking any shot at all. And the market has responded poorly in response. By 1:15 PM EST shares of RadioShack had fallen 19.53 percent to hit $1.36 a share amid four times average volume.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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