RadioShack Corp.'s plan to revive its stores would have been difficult to execute even in the best of times, analysts say. Now it's contending with an industrywide slump in electronics demand that's also hurting healthier rivals.

Challenged by its small-format locations in an industry dominated by big stores and online retailers, the company said Tuesday that soft demand for mobile phones was a big contributor to its 14 percent decline in same-store sales. Best Buy Co., Wal-Mart Stores Inc. and HHGregg Inc. have recently reported weaker electronics results, too.

"There is a bit of a slump," said Scott Tilghman, an analyst at B. Riley & Co. in Boston. "There hasn't been a lot of innovation over the last few quarters, there hasn't been a lot of new product coming to market."

That slowdown may rob RadioShack Chief Executive Officer Joe Magnacca of the time he needs to cut costs and develop new merchandise, while making it harder to generate cash and pay back creditors. RadioShack also is "very unlikely" to entice acquisition suitors, said Oliver Wintermantel, an analyst at International Strategy & Investment Group in New York.

Best Buy had been viewed as a possible acquirer a few years ago when it was rolling out its smaller-format stores, but they're not interested now, he said. Private-equity firms, meanwhile, would stay away because "free cash-flow is nonexistent." Best Buy declined to comment.

RadioShack's loss last quarter widened to $98.3 million from $28 million a year earlier, the Fort Worth-based company said Tuesday. Sales slid 13 percent to $736.7 million in the period, which ended May 3, marking the ninth straight quarterly decline.

RadioShack's operations consumed $37.8 million in cash, and the company ended the quarter with cash and equivalents of $61.8 million, down from $109.6 million a year earlier. The company said it had an additional $361.9 million of liquidity available through a credit agreement.

RadioShack's troubles are hitting as a broad swath of retailers is dealing with shaky consumer confidence, forcing them to deepen discounts and imperiling profitability. The Standard & Poor's 500 Retailing Index has dropped 4.9 percent this year through yesterday, compared with a 5.5 percent gain for the broader S&P 500.

The industrywide softness is hurting RadioShack even more than competitors because it's concentrated in mobile phones, while rivals have broader assortments, said Anthony Chukumba, an analyst at BB&T Corp. in New York.

"There's just not a lot of compelling product that's come out recently, particularly in mobile, and RadioShack is a lot more focused in mobile," said Chukumba, who has the equivalent of a hold recommendation on the shares.

During the company's earnings call Tuesday, Magnacca cited aggressive deals from wireless companies and "lackluster consumer interest" in currently available phones, along with declining demand for consumer electronics.

Magnacca's turnaround effort already had hit a snag earlier this year when creditors blocked a plan to shut 1,100 underperforming stores, forcing RadioShack to limit closings to 200 instead. RadioShack is continuing conversations about store closings with lenders, executives said on the call.

Magnacca, a former drugstore-chain executive, has brought in a new team of leaders and overhauled store design to revive the business. The company jokingly referenced the process of updating its aged stores in a 2014 Super Bowl commercial featuring Hulk Hogan and other 1980s characters.

Last week, the retailer said it's teaming up with product-developer PCH International of San Francisco to help startups design goods for direct sale to RadioShack stores.

"While we face headwinds in our sector of retail, we have a clear vision for RadioShack's future, and a detailed strategy to turn the business around," Magnacca said on the call. The company has reduced some sourcing costs and boosted its assortment of products from Apple Inc., he said.

Still, RadioShack may not have enough time to enact that turnaround, Tilghman said. Not only is the magnitude of the electronics sales decline worse at RadioShack, it's also running out of resources, he said.

"At this rate of cash burn, I think the vendors are going to begin to get nervous," said Tilghman, who recommends selling the shares. "Their near-term fate rests with the vendors" as the critical back-to-school and holiday seasons approach. He estimated a "better-than-50-50 likelihood" that the company may need to seek protection from creditors.

Business on 06/12/2014