RadioShack to Close Fewer Stores as It Contends With Lenders

RadioShack Corp. (RSH), which said in March it would close as many as 1,100 locations to cut costs, is proceeding with a plan to shut fewer stores because of a snag with its lender agreements.

The Fort Worth, Texas-based company has been seeking consent from creditors to proceed with the full closure plan, though the terms being offered aren’t acceptable, according to a regulatory filing yesterday.

The impasse may have a negative impact on RadioShack’s credit because most of the stores it wanted to close are underperforming, Moody’s Investors Service said in a statement today. Its loan agreements require lenders to sign off on more than 200 store closings a year, out of a total of 4,297 company-owned locations, the credit-rating firm said.

“Management will have to pursue other limited options of cost-reduction programs to improve profitability,” said Manoj Chadha, an analyst at Moody’s in New York. For now, though, RadioShack’s credit ratings and outlook are unaffected.

RadioShack shares fell 9.5 percent to $1.33 at the close in New York. The stock has declined 49 percent this year.

RadioShack’s $325 million of 6.75 percent notes due 2019 jumped for the first time in three days before the company’s filing was posted yesterday. The securities rose 3.75 cents to 41.75 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes, which traded as high as 66.5 cents in February, have climbed from a record-low 35.9 cents on April 22.

Mounting Losses

Chief Executive Officer Joe Magnacca is trying to rejuvenate the almost-century-old electronics chain, which has struggled to compete with online rivals such as Amazon.com Inc. RadioShack’s fourth-quarter net loss widened to $191.4 million, marking the eighth consecutive quarterly deficit. Sales at stores open at least a year sank 19 percent in the period.

RadioShack’s decision to publicly announce the store closing plan in March without approval from its lenders created additional tension, the Wall Street Journal reported last month. Still, the creditors aren’t against the idea of paring its locations. Some lenders are proposing that as many as 2,000 stores be closed, the newspaper reported.

“While the company may continue to have discussions with its lenders regarding the proposed store closure program, the company is continuing with a plan to close fewer stores and pursuing other cost reduction measures,” the company said yesterday in the filing.

Stuck in 1980s

Magnacca, a former drugstore-chain executive, has hired a new team of managers, including Dollar General Corp. executive John Feray as chief financial officer. The CEO has pinned the company’s turnaround on five projects, including boosting efficiency, cutting costs and developing new merchandise.

The retailer has a reputation for being trapped in the 1980s, something RadioShack referenced itself in a Super Bowl ad this year. The commercial featured Alf, Hulk Hogan and other characters from the era rampaging through a store.

“It’s time for a new RadioShack,” the ad’s narrator said. “Come see what’s possible when we do it together.”

To contact the reporter on this story: Nick Turner in New York at nturner7@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Ben Livesey

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