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RadioShack To Close 1,100 Stores

by Jacob Kleinman | March 4, 2014March 4, 2014 9:00 am PDT

radioshack

Last month we heard a rumor that RadioShack was preparing to shutter 500 stores in the face of shrinking profits, but it turns out the real story is even worse. In its fourth quarter 2013 earnings report, the retail chain reveals it will actually close as many as 1,100 underperforming stores across the U.S.

RadioShack CEO Joseph C. Magnacca notes that sales over the holiday season were lower than expected despite numerous promotions. He says, however, that the company’s new concept stores have shown solid growth. The electronics seller’s new strategy, which it initially announced with a well-received Super Bowl commercial, means the company will refocus its brand and trim the fat wherever possible.

Overall, RadioShack saw $935.4 million in revenue for Q4 2013 compared to $1.17 billion a year earlier. The company also revealed an operating loss of $166.1 million, while last year it saw an operating income of $16 million. The decision to close more than 1,000 stores coupled with $835 million in new financing should help RadioShack make a comeback in 2014, though the company still faces a significant challenge from Amazon and other online retailers.

Shares of RadioShack are currently trading down about 16 percent, around $2.29 a share, on the news.

RadioShack Reports Financial Results for Fourth Quarter 2013

– Plans to close up to 1,100 underperforming stores in the U.S.
– Strong sales growth in Concept Stores
– Completed new five-year financing totaling $835 million in the fourth quarter

FORT WORTH, Texas, March 4, 2014 /PRNewswire/ — RadioShack Corporation (NYSE: RSH) today reported results for the fourth quarter ended December 31, 2013.

Joseph C. Magnacca, chief executive officer, said, “Our fourth quarter financial results were driven by a holiday season characterized by lower store traffic, intense promotional activity particularly in consumer electronics, a very soft mobility marketplace and a few operational issues. Even in this environment, we’re continuing to make progress on the five pillars of our turnaround plan: repositioning the brand, revamping the product assortment, reinvigorating the stores, operational efficiency and financial flexibility.

“Our brand equity remains strong, reflected in the sales growth we’re seeing in our new Concept Stores which redefine the RadioShack store experience,” Mr. Magnacca added. “We have also been encouraged by the positive response to our new brand positioning around “Do It Together,” which we kicked off with our award winning Super Bowl commercial. Importantly, our key hires during the fourth quarter in merchandising, global sourcing, planning and allocation and, more recently, our new chief financial officer, round out our new leadership team as we continue to re-build the business.”

Mr. Magnacca continued, “Our focus on the brand, our operations, and the in-store experience has been unfolding in parallel with a strategic review of our store footprint. Over the past few months, we have undertaken a comprehensive review of our portfolio from many angles – location, area demographics, lease life and financial performance – in order to consolidate our store base into fewer locations while maintaining a strong presence in each market. The result of that review is our plan to close up to 1,100 underperforming stores. We will continue to have a strong, unmatched presence across the U.S. with over 4,000 stores including over 900 dealer franchise locations.

“Without minimizing the challenges ahead, we have a detailed strategic path to profitability based upon the five pillars of our turnaround,” Mr. Magnacca concluded. “Our entire team is focused on execution as we work to improve our performance in the coming year.”

Note: All comparisons are versus the same period of the prior fiscal year unless otherwise noted.

FOURTH QUARTER SUMMARY

Total net sales and operating revenues were $935.4 million, compared to $1,171.4 million last year. Comparable store sales were down 19% driven by traffic declines and soft performance in the mobility business.
Consolidated gross profit was $278.4 million, or 29.8% of net sales, compared with $419.3 million last year, or 35.8% of net sales. On an adjusted basis excluding one-time reserves on inventory, gross profit was $288.5 million or 30.8% of net sales.
Consolidated selling, general and administrative (SG&A) expenses were $389.3 million, or 41.6% of net sales, compared with $383.5 million last year, or 32.7% of net sales.
Operating loss for the fourth quarter was $166.1 million compared to operating income of $16 million last year. On an adjusted basis, operating loss was $115.2 million excluding certain non-cash and one-time reserves on inventory and impairments of fixed assets and goodwill.
Net loss of $191.4 million, or $1.90 per diluted share, compared to net loss of $63.3 million last year. On an adjusted basis, net loss was $129.9 million, which compares to an adjusted net income of $6.8 million last year.
In December, the Company completed a new financing totaling $835 million including a $585 million asset-based credit agreement (“2018 Credit Agreement”) led by GE Capital, Corporate Retail Finance and a $250 million secured term loan (“2018 Term Loan”) led by Salus Capital Partners, LLC. This comprehensive new financing was used to refinance existing debt and other corporate purposes.
The Company expects to close up to 1,100 stores which have been selected based on location, area demographics, lease life and financial performance. The proposed store closure program is subject to the consent of our lenders under the 2018 Credit Agreement and the 2018 Term Loan.
FULL YEAR SUMMARY

Total net sales and operating revenue were $3.43 billion, compared to $3.83 billion last year. Comparable store sales were down 8.8%.
Consolidated gross profit was $1.17 billion, or 34.1% of net sales, compared with $1.47 billion last year, or 38.4% of net sales. On an adjusted basis excluding certain one-time inventory reserves, gross margin was 35.8% of net sales.
Consolidated selling, general and administrative (SG&A) expenses were $1.41 billion, or 41.0% of net sales, compared with $1.42 billion last year, or 37.1% of net sales.
Operating loss was $344.0 million compared to an operating loss of $25.0 million last year. On an adjusted basis, operating loss was $239.9 million excluding certain non-cash and one-time reserves on inventory and impairments of fixed assets and goodwill.
Net loss of $400.2 million, or $3.97 per diluted share, compared to net loss of $139.4 million last year. On an adjusted basis, net loss was $305.8 million, which compares to an adjusted net loss of $60.5 million last year.
CASH, LIQUIDITY AND CAPITAL SPENDING

The Company ended the fourth quarter with total liquidity of $554.3 million at December 31, 2013, including $179.8 million in cash and cash equivalents and $374.5 million of availability under our 2018 Credit Agreement. Other than letters of credit of $55.0 million at December 31, 2013, the Company has not otherwise used the availability under the 2018 Credit Agreement. The Company’s total debt was $614 million at December 31, 2013, which matures between 2018 and 2019.

NEW FINANCIAL CALENDAR

As previously announced, the Company has aligned its fiscal yearend to a traditional 52-week retail calendar, with the fiscal year ending on the Saturday closest to January 31st. This is the format used by the majority of retailers today. Changing the Company’s yearend will benefit the investment community as it will allow for easier comparability between the Company and its peers. It will also allow the management team to more efficiently track and measure the Company’s performance during the year.

As a result of this change, the Company will have a stub period between January 1, 2014, and February 1, 2014, that will be identified as Fiscal Year 2014 which will be reported separately in the Form 10-Q for the first quarter of Fiscal 2015. Fiscal Year 2015 will run from February 2, 2014, through January 31, 2015.

RadioShack

Jacob Kleinman

Jacob Kleinman has been working as a journalist online and in print since he arrived at Wesleyan University in 2007. After graduating, he took a...

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