By Matt Jarzemsky, Mike Spector and Drew FitzGerald
RadioShack Corp. is preparing to file for bankruptcy protection
as early as next month, people familiar with the matter said,
following a sputtering turnaround effort that left the electronics
chain short on cash.
A filing could come in the first week of February, one of the
people said. The Fort Worth, Texas, company has reached out to
potential lenders who could help fund its operations during the
process, another person said.
Meanwhile, RadioShack is in talks with a private-equity firm
that could buy its assets out of bankruptcy, the people said. They
cautioned that the talks with the private-equity firm may not
produce a deal and that the company may try instead for a more
typical reduction of debt and restructuring of its operations in
bankruptcy court.
Situations when companies are close to a bankruptcy filing can
be fluid and even contentious, and plans can change at the last
minute.
The retailer has made clear it is running dangerously low on
cash after posting losses in each of the last 11 quarters, and its
stock-market value has shriveled to less than $50 million. In
December, it warned in a securities filing that it could be forced
into bankruptcy court if it couldn't raise new funds or get relief
from lenders that have blocked its efforts to close hundreds of
stores.
The company said in the filing that it had $62.6 million on hand
as of Nov. 1--$43.3 million in cash and $19.3 million in borrowing
availability--a thin cushion for a sprawling chain with about 4,300
company-operated stores in North America.
The 94-year-old chain that started in the 1920s with a store in
Boston traced the rise of electronics in the life of
Americans--from transistor radios and typewriters to Bluetooth
headphones and smartphones. It grew into a nationwide icon but
began spiraling toward irrelevance as electronics moved to the Web
and technology moved on.
New Chief Executive Joe Magnacca tried to revamp the company's
store fleet and reposition it in part as a smartphone repair shop.
But it wasn't enough to hold off creditors or bring back shoppers.
Nearly three years of losses and sales at their lowest levels in
decades had forced the electronics chain to turn to hedge funds for
financial lifelines to stay in business. Objections from some of
those same lenders prevented the company from closing hundreds of
stores it felt it needed to shut down to stay afloat.
What looked to be a tough holiday season--visits to stores
revealed little traffic on key shopping days--may have been the
last straw.
The struggles of RadioShack started well before its latest cash
crunch. Current and former executives said the chain began to lose
its cachet in the 1990s as it shifted its attention away from
diehard electronics enthusiasts and gave its staff incentives to
sell items like mobile phones.
By 2011, the smartphone business had grown to account for more
than half of RadioShack's sales. The big-ticket gadgets helped lift
the chain's overall revenue, but they did little to improve
earnings as shoppers went elsewhere to buy more lucrative add-ons
like cases and chargers.
Many RadioShack staples, such as cables and TV adapters, became
just as easy to find online. A survey from investment bank William
Blair before the holidays found Amazon.com Inc. offered nearly
two-thirds of RadioShack's inventory, mostly at lower prices.
Sales were already sliding when the company hired Mr. Magnacca,
a former Walgreen executive. RadioShack tried to generate buzz with
a 30-second Super Bowl ad last year that poked fun at the chain's
outdated image. The spot featured a series of throwback characters
from the 1980s, including Hulk Hogan, Erik Estrada and Alf, tearing
out the store's aging shelves and dragging obsolete products back
to their decade.
But the new products and fresher store design that the
commercial highlighted hadn't yet come to most stores when the ad
ran, and the marketing push had no obvious impact on nationwide
sales.
RadioShack then ran into more trouble with its lenders. In March
the company announced plans to close up to 1,100 stores as it
sought to reduce costs to stay in business. But creditors including
hedge fund Salus Capital Partners balked at the plan. The terms of
its loan agreement prevented the retailer from closing more than
200 stores. Without its creditors' stamp of approval, the company
continued to bleed cash.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com, Mike
Spector at mike.spector@wsj.com and Drew FitzGerald at
andrew.fitzgerald@wsj.com
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