RadioShack Must Adapt or Perish

Tickers in this article: RSH
NEW YORK ( TheStreet) --Yesterday had all the earmarks of an extremely ugly day for embattled small-box electronics retailer RadioShack (RSH) . Fourth quarter earnings, released prior to the market open, appeared to be downright ugly. Revenue of $1.296 billion came in below the $1.36 billion consensus estimate, with a loss of 63 cents a share for the quarter.

That loss included a $67-million charge related to deferred tax assets, without which the company would have earned four cents per share, which beat the consensus estimate of a loss of five cents per share.

Shares were getting hammered in pre-market trading, staged a small rally, then closed the day up one cent.

It was a mass of confusion as investors reacted to the reported loss of 63 cents a share, but the mood lightened a bit once the results and subsequent conference call were digested.

RSH ChartRSH data by YCharts
There's no getting around the fact that this is a company with huge challenges ahead of it, and that's putting it in the most positive terms. That's why Radio Shack is a $3 stock at this point, and why many believe it will not survive.

As a deep value investor, my take is a bit different. I know it looks bad for an old-time electronics retailer attempting to compete and survive in a modern retail landscape, but this company does have some time, and it does have some resources. RadioShack has a chance to re-brand, and re-size itself, but it has to begin making meaningful changes soon.

The company also has new management, but new CEO Joe Magnacca has been on the job less than two weeks. On yesterday's call, Magnacca spoke of the "100-day plan" that he and the management team will present to the board by the end of March or early April, the results of which could be crucial to company survival.

It's nice to see a sense of urgency here, but many investors probably see this as "too much, too little, too late."

There's little doubt that the company will be closing some stores, and there's also the possibility of some asset sales. Both may be necessary if RadioShack hopes to survive.

In terms of resources, there's still $536 million in cash on the books, and $391 million remaining on a revolving credit agreement. Debt at $778 million is an issue, and a concern. The company's convertible notes, with principal of $287 million mature in August, and that will need to be addressed soon. The remaining debt matures in 2016 and later.

Taking into consideration RadioShack's latest balance sheet data, the company still trades at a relatively small multiple of net current asset value, at 1.08 times NCAV.

This is "owning ugly" at its finest. If the company can regroup, and emerge as a smaller, profitable entity, owning RadioShack here will be viewed in hindsight as a "deep value" play. If the downward spiral continues, it will be seen as a fool's errand.