B. Riley & Co’s Scott Tilghman cut his RadioShack price target to $US0 after the company reported massively disappointing quarterly results.
The chances RadioShack files for bankruptcy are now over 50%, Tilghman said:
“The company continues to burn cash at a rapid rate as steep sales declines persist and cost savings are difficult to achieve. Merchandising changes (30%-40% change by the end of 3Q) and store updates are underway, but the company’s lack of capital and the necessity to move quickly without fully vetting decisions means turnaround hopes seem to rest on crossed fingers rather than hard data. We expect July/August to be very telling as the company will need to build inventory to support back-to-school, which ultimately means the company will have to maintain the support of its vendors, which we think may prove challenging. We think the odds of a bankruptcy filing are now over 50% and therefore are maintaining our Sell rating and cutting our PT to $US0 as we view recovery for the company as unlikely.”
Yesterday, we noted that RadioShack’s inability to close stores as quickly as had hoped put it in a precarious position. Tilghman said that the company’s amended store closure plan, closing 200 stores per year as opposed to 1,100, won’t have any benefit and could actually make matters worse for RadioShack.
Tilghman adds that, “given the lack of attention the company has received during the last two years as it burned through $US500 million,” a bid from a third party, like a private equity firm or another public company, to prevent the company from going into bankruptcy is unlikely.
Ahead of the market open, RadioShack shares are down 2%.
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