RadioShack has some high hurdles to clear in January.
The struggling consumer-electronics retailer has said it will be cutting more jobs as part of its previously announced plan to slash $400 million in annual costs.
The cuts, announced in December as it posted a wider third-quarter loss, relate to short-term and long-term issues facing the chain of 4,297 stores.
RadioShack has to have at least $100 million in cash or borrowing capacity by Jan. 15 under its loan agreement made in October.
RadioShack ended the third quarter with total liquidity of $62.6 million — $43.3 million in cash and $19.3 million available to borrow from its bank loan. Total debt was $841.5 million.
It also has to have a viable business plan ready for its new fiscal year that starts Feb. 1.
The conditions are part of a $120 million loan it received in October from major shareholder Standard General. That loan was intended to help it get through the year-end shopping season. The debt is convertible into RadioShack stock. Also as part of that deal, RadioShack has to offer rights to existing shareholders that would allow them to purchase discounted shares.
And those shares are in jeopardy of being delisted by the New York Stock Exchange.
In late January, RadioShack will reach a six-month deadline to get its market value back up above $50 million. If it misses that deadline, its shares will continue to trade in the over-the-counter market.
Analysts give RadioShack Chief Executive Joe Magnacca high marks for his ideas, but say he entered the scene too late. Magnacca was hired in February 2013. He put together a team and got to work on new concept stores, something he had succeeded in doing at Walgreens when it purchased the Duane Reade chain in New York.
Wedbush analyst Michael Pachter is a longtime RadioShack observer. He said in a December report that RadioShack’s ability to reserve at least $100 million in available cash by mid-January “is far more tenuous than this deal suggests, particularly if the company’s losses continue to mount.”
Can RadioShack pull off a favorable restructuring as the new year gets underway? Magnacca continues to try to convince its other lender, Salus Capital Partners, that RadioShack should be allowed to close 1,000 unprofitable stores. RadioShack received a five-year $250 million term loan from Salus in December 2013. That loan specifically prohibits RadioShack from closing more than 200 stores a year. It closed 175 locations this year.
Pachter estimates that the company will continue to lose roughly $30 million a month.
Management has multiple fronts to tackle: In a filing posted on Dec. 24, RadioShack disclosed that the U.S. Labor Department is investigating how it managed its 401(k) retirement plan for employees. The company said it’s provided documents to the government after receiving a letter saying the department is looking into its 401(k) plan going back to 2011. There are three pending lawsuits relating to the plan.
As part of its cost-cutting efforts, beginning Feb. 1, RadioShack will stop making matching contributions to its employee 401(k) accounts.
When RadioShack first said in September that it may have to file for Chapter 11 bankruptcy protection, it removed RadioShack common stock as an investment option in the 401(k) plan.
During the company’s third-quarter conference call on Dec. 12, Magnacca said, “We know that coming to a long-term solution will be difficult, and our ability to get there will be significantly affected by our performance during the critical holiday period.”
With additional staff cuts coming in January, the company is in discussions to move from two buildings into one, but a spokeswoman wouldn’t confirm details.
A decade ago, RadioShack moved into the brand new, 900,000-square-foot riverfront campus along the Trinity River in downtown Fort Worth, Texas.
The four buildings had mostly glass walls, and employees were encouraged to take laptops outside onto terraces to work, according to published reports at the time. The 38-acre campus was designed by Dallas-based HKS and was touted as a new environment to inspire employees to think differently.
The complex was sold to the Tarrant County College District in 2008.
By 2009, the headquarters staff of 1,700 was consolidated into its two current buildings. Former CEO Julian Day had led a big cost-cutting period to boost profits and had unsuccessfully tried to sell the company.
At one time, RadioShack was one of Fort Worth’s biggest employers downtown, with a staff of almost 5,000 people. In the final week of 2013, RadioShack employed 850 people in downtown Fort Worth. The number of terminations still to come is a working number, since the goal is to get to annual savings of $21 million from headquarters staff cuts, not a specific number of jobs. In the third quarter, RadioShack recorded severance costs of $2.9 million after terminating 150 headquarters employees.