DALLAS – 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 earlier this month 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 holiday 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 report this month 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 begins? 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 Christmas Eve, RadioShack disclosed that the U.S. Labor Department is investigating how it managed its 401(k) retirement plan for employees. The company said it has 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.