Waving the White Flag on RadioShack

I think new management at RadioShack has the strategy right. They are testing out various configurations of different categories and labour models at a few concept stores, and rolling out the successful learnings to the rest of the store network. They are shutting down the least profitable stores, and cutting overall expenses. They are introducing new products (e.g. 3D printers) in an attempt to break reliance on declining categories. The problem is, it is taking too long.

As a result, I sold my shares of RadioShack at a loss this week after reading through their most recent results. While I think they have a reasonable chance at turning it around, I'm not willing to take that chance considering the company's financial position. Management has pushed the company's obligations out a few years, but now it appears it will take years just to figure out if the turnaround will be successful. That means if the turnaround is not successful, bankruptcy is likely, and I don't want to take that risk.

The concept stores, while they are apparently showing strong sales results, are still not profitable! (I'm inferring this from the conference call. As an aside, I'd have loved it as an investor if the company would break down just how the concept stores are doing, but I understand for competitive reasons why they would not want to.) This means not only is there still a lot of work to do within the test stores and with the product selection, but it will take even more time to propagate these changes out to the rest of the network.

If RadioShack instead had a net cash position, like let's say Best Buy does, maybe I would feel a little bit more protected on the downside, as the company would have more time to get it right. But it doesn't! What used to be a net cash position has become a growing debt position, with no relief in sight.

As such, RadioShack becomes the first company of 2014 to join my list of Value Fails. Next time you see me making a mistake, please talk me out of it!