Fading RadioShack may close 1,100 stores

Ruben Zarate (left), manager of the RadioShack at Cityplace Market in Dallas, guides Melvin Cheatham through smartphone selections. RadioShack, which posted its second consecutive annual loss after holiday sales fell 20 percent, will have about 3,100 company-operated stores and 900 franchise stores left after the planned closures.

It’s getting harder to be RadioShack.

The ubiquitous little stores around the corner have filled the everyday electronic needs of multiple generations. But RadioShack Corp.’s holiday sales fell 20 percent, and now it’s closing 25 percent of its stores.

The Fort Worth-based retailer said Tuesday that it will close up to 1,100 unprofitable stores this year after posting its second consecutive annual loss.

RadioShack will have about 3,100 company-operated stores and 900 franchise stores after the cuts this year.

The 90-year-old company is trying to fit into a crowded consumer electronics space. CEO Joe Magnacca put the problem this way: There are eight RadioShack stores within 5 miles of his house in Fort Worth.

Magnacca, who came to RadioShack a year ago from Walgreens, has said before that the turnaround will take longer than he had expected. On Tuesday, he added that a lot of the company’s basic retail processes were broken when he got there and that the turnaround started at a lower point than he expected.

Magnacca also said efforts to remove slow-moving products from stores sometimes went too deep.

Other problems during the quarter: Wireless business revenue fell 23 percent. Deep discounting by competitors during the holiday season hurt results even though RadioShack did its own price-matching.

RadioShack also lowered the value of its business in Mexico, taking a one-time charge as sales fell 10 percent. Now it has a turnaround situation there, too.

“We exceeded our organization’s capabilities by trying to do too much too quickly,” Magnacca told analysts.

Magnacca said he’s pleased with the traffic and sales at the 100 new concept stores he opened last year. The stores have interactive displays where people can find the best choice of headphones for their own devices and see a 3-D printer in action. In North Texas, two concept stores opened in October in Fort Worth’s Sundance Square and Montgomery Plaza.

“This is a good management team, and they’re doing the right things, but it’s 10 years too late for RadioShack,” Wedbush analyst Michael Pachter said. “They should have done all this 10 years ago. Now they’re in desperation mode. It’s going to take more than a clever Super Bowl ad.”

RadioShack’s new brand repositioning uses the tagline “do it together” to represent a place where shoppers can solve technology needs. Its attention-grabbing Super Bowl ad, however, isn’t necessarily driving shoppers to its stores.

“Oh, yeah, I saw that ad. It didn’t make me want to shop there,” said Dakota Meurer, 18, of Lindale, who was at a shopping center just down the street from Texas Instruments. “The only time I’ve been in a RadioShack store is if I’m in a mall and there’s nothing else to do.”

Neighborhood geeks do frequent the RadioShack in that shopping center, picking up soldering tools or other obscure parts.

But TI test engineer Victor Lopez, who was leaving the Momo Italian Kitchen on Forest Lane on Tuesday, said: “If we need a part, we order it online and get it the next day.”

Often when chains make the big decision to close a huge number of stores, Wall Street rewards them for taking a difficult step. Not this time. The stock price fell 17 percent Tuesday to close at $2.25 a share.

Deutsche Bank analyst Mike Baker said the store-closing plan is positive, but it won’t offset the weak quarter. RadioShack is losing customers at an accelerated pace, he said.

Asked during the conference call about a prepackaged bankruptcy as a way to shutter stores, chief financial officer John Feray said it wasn’t considered.

“We believe our anticipated sources of liquidity will be sufficient to meet our obligations in 2014,” Feray said.

It’s going to be a while before stores start closing because RadioShack’s lenders have to approve the 25 percent decline in the store base.

Feray said costs associated with breaking leases with landlords should be offset with proceeds from the inventory liquidation sales. The store closings are expected to be in all markets. RadioShack is trying to consolidate its business into fewer locations “while maintaining a strong presence in each market,” Magnacca said.

The company’s decision to shrink wasn’t a surprise, but the number of stores is higher than analysts expected.

RadioShack also renegotiated its debt during the quarter and has $179.8 million in cash and $374.5 million in available debt. Total debt at the end of the year was $614 million.

RadioShack reported a fourth-quarter net loss of $191.4 million, or $1.90 a share, in the period ended Dec. 31, compared with a net loss of $63.3 million, or 63 cents a share, a year ago.

Total sales fell to $935.4 million from $1.17 billion a year ago. Same-store sales fell 19 percent.

The poor results came down to a holiday season of lower customer traffic, intense discounting, soft mobile phone demand and a few operational issues, Magnacca said.

“Without minimizing the challenges ahead, we have a detailed strategic path to profitability,” he said. He has hired a new management team, created new store concepts, moved slow-moving products out of stores and arranged to put RadioShack-branded shelves inside college bookstores.

But losses in 2013 were higher than analysts expected the whole year. RadioShack is now making a bet that customers who shop at a store that’s closing will find their way to another RadioShack nearby.