Bankruptcy Warning: Sell Your Shares, ASAP
Come Thursday at 8:30 AM, the U.S. Census Bureau will release the next round of retail sales data.
And everyone will be tuned in to see if the industry shrugged off the winter blues.
As MarketWatch’s Jeffry Bartash writes, “Almost everyone, it seems, believes an unusually severe winter is all that’s holding back growth.”
Count the top minds at Credit Suisse (CS) among the believers. They contend that “frigid weather likely dampened [retail] activity.”
For that theory to even remotely hold water, though, the faithful need retail sales to rebound 0.2% as expected – compared to the 0.4% decline experienced in January.
What’s my take? As I shared yesterday in my article about the failures in the retail industry, I’m not holding my breath. But we’ll find out who’s right soon enough.
Either way, one retailer’s fate is already sealed, rebound or not. Here’s the overwhelming proof, and how to profit from it…
Time for a pop quiz: When did you last set foot in a RadioShack (RSH)? Can’t remember, can you?
Ask any teen or 20-something in your family the same question, and they’ll likely respond, “What’s a RadioShack?”
And that’s pretty much why the company is doomed.
In today’s retail world, RadioShack is completely irrelevant. That’s why I’m not shocked one bit by the company’s announcement last week that it’s shuttering 1,100 locations.
Of course, CEO Joseph Magnacca swears that the company’s turnaround plans are still intact. In his words, the company has just suffered a few setbacks because it’s “weak” in many areas and “just broken” in others.
Puh-lease! The entire operation is broken and needs to be shut down.
Or as Warren Shoulberg of The Robin Report writes, “There just aren’t enough batteries in the world to recharge RadioShack.”
And these particularly damning statistics prove it:
- Even after a fresh $835-million infusion in capital, management still can’t seem to turn things around. The company has lost money for eight quarters in a row (and counting).
- During the holidays, typically the strongest quarter of the year for retailers, RadioShack reported a loss of $191.4 million.
- Same-store sales – a key gauge of a retailer’s health – sank 19% in the last quarter.
- “Consumer perception” of the chain sits in the basement at 8%, according to YouGov BrandIndex. For comparison’s sake, fellow struggling electronics retailer, Best Buy (BBY), boasts a 22% reading.
- Sales per square foot check in at an anemic $400, compared to roughly double that for Best Buy.
You get the picture. The underlying business fundamentals stink. They’ve gotten so bad, in fact, that bond investors are already betting on a full-blown collapse.
In recent weeks, RadioShack’s bond and credit-default swap prices, which represent the cost to insure against a default, spiked to record highs for one- and five-year contracts.
At current levels, Bloomberg reports that the company’s debt should be rated C, which means there’s “little prospect for recovery or principal or interest,” based on Moody’s credit-rating definitions.
Bottom line: I’ve been warning about the troubles at RadioShack since mid-2012. Given the changing retail landscape since then, and the company’s inability to adapt, I’m convinced there’s no need for RadioShack anymore.
So while the analysts at Goldman Sachs (GS) just slapped a $1 price target on shares, I’m going one step further. I’m slapping a $0 price target on shares. I expect the company to file for bankruptcy protection later this year.
And the best way to profit from such an event, while also minimizing our risk, is to buy the January 2015 $1.50 put options. Don’t miss out!
Ahead of the tape,