In the world of Wall Street, hints and winks are often more important than words. When a fixed income media outlet—DebtWire—reported Thursday (July 11) that "RadioShack plans to entertain pitches for a financial advisor in the coming weeks," it was widely interpreted as signaling that the chain was trying to sell itself and the stock plunged some 14 percent.
On Friday (July 12), RadioShack (NYSE:RSH) issued a statement defending the strength of its balance sheet and stressing that the "sole focus" of the discussions were ways to strengthen that balance sheet. "We continue to have a strong balance sheet with total liquidity of $820 million at the end of the first quarter. Like many companies, we have discussions with investment banks from time to time to help us evaluate ways to further strengthen our balance sheet and manage it efficiently," the RadioShack statement said. "That has been the sole focus of these discussions. As we noted on our last earnings call, we are focused on executing our turnaround and serving our customers."
Wall Street seemed pleased with the statement and brought the company's stock right back where it had been prior to the report. Wall Street financial analysts, though, were still mixed about RadioShack's future prospects.
RadioShack "has sufficient cash to get through the current year and well into next year, even with weak results, and still pay down" the debt due in August, Janney Capital Analyst David Strasser told MarketWatch. "This allows them liquidity and time to begin to implement a new strategy, and provide some comfort to vendors and banks that it will work. We think the longer term strategy is challenging, but there is a solid new team in place to execute it."
Another analyst, though, was much less hopeful. "We expect significant losses to continue, and are not optimistic that the company's turnaround will be successful," said Wedbush analyst Michael Pachter. He said the company has "little power" over smartphones or post-paid pricing. "Management clearly hopes to sell more accessories and pre-paid phones, but we think its fundamental problems are traffic-driven, and we expect traffic declines to continue," he added.
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