Wedbush analyst Michael Pachter and team lowered their price target on RadioShack (RSH) to $0. They explain why:
In May, RadioShack announced that it was unable to successfully negotiate consent from its lenders under the 2018 Credit Agreement and Term Loan to close up to 1,100 stores. The terms offered by lenders were not acceptable to the company. RadioShack's operational decisions are now being vetted by creditors and equity investors are no longer relevant to management decisions—the creditors clearly are in control of the ship and, in our view, the ship is sinking. The credit agreement allows the closure of 200 stores per year or 600 over the life of the agreement. We believe a bankruptcy reorganization is imminent…
We believe brick and mortar electronics retailers will see persistent structural decline as Internet sales continue to take share. Best Buy (BBY) experienced comp declines of 2.7% for Q2:15. Domestic Q2 sales were down 2% overall, and store level sales were down roughly 4% without the contribution of over $100 million incremental online sales. Notwithstanding significant investments in price competitiveness, we see continuing evidence of traffic deterioration and lower productivity for Best Buy's retail foot print. RadioShack has less financial flexibility to invest in price competitiveness, and its primary business is as a consumer electronics "convenience store".
RadioShack will release its financial results on Thursday morning, and Pachter sees a big, big miss in RadioShack’s future. He expects RadioShack to report a loss of 66 cents, well below the Street consensus for a 36 cent loss, on sales of $762 million, well below forecasts for $893 million.
Shares of RadioShack have dropped 4.9% to $1.16 at 2:30 p.m. today.
A call to RadioShack requesting comment hadn’t been returned at the time of publication.
UPDATE: RadioShack declined to comment.
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