Bloomberg News

RadioShack May Run Out of Cash Next Year, Moody’s Says

July 29, 2014

RadioShack Corp. (RSH:US), the struggling electronics retailer, is in danger of running out of cash before it can complete a turnaround, Moody’s Investors Service said.

Without a capital infusion, RadioShack will probably face a cash crunch by the quarter ending Nov. 1, 2015, Moody’s said today in a report. While the company has no debt coming due until 2018, operating losses will hurt liquidity and hobble its comeback, the credit-rating firm said. The continued cash burn could also force suppliers to pull support, it said.

“Barring an improvement in the top line and margins, we think they will continue to burn cash and their liquidity position will continue to deteriorate,” Mickey Chadha, a Moody’s analyst in New York, said in an interview.

RadioShack has continued to post sales declines and losses under Chief Executive Officer Joe Magnacca, who joined the retailer in February 2013 to lead a comeback. Magnacca, a former executive at drugstore chain Walgreen Co. (WAG:US), has tried cutting costs, closing stores and revamping others to focus on mobile devices.

In the first quarter, the Fort Worth, Texas-based chain’s loss widened to $98.3 million from $28 million a year earlier. Sales slid 13 percent to $736.7 million in the period, which ended May 3, marking the ninth straight quarterly decline.

Shares Tumble

Shares of RadioShack, which has more than more than 5,000 locations, have lost almost three-quarters of their value this year. Today, the stock fell (RSH:US) 12 percent to 68 cents at the close in New York.

Magnacca’s turnaround effort hit another snag earlier this year when creditors blocked a plan to shut 1,100 underperforming stores, forcing RadioShack to limit closings to as many as 200 instead. RadioShack said last month that it’s continuing conversations about store closings with lenders.

“The big takeaway on all these initiatives from the CEO is that they haven’t reduced the cash burn at the company,” Chadha said.

Ruth Pachman, a spokeswoman for RadioShack, declined to comment on the report.

Moody’s rates RadioShack Caa2, eight levels below investment grade, with a negative outlook. Its rating on the chain’s liquidity is SGL-3, reflecting a view that the company has adequate liquidity for the next 12 months.

The New York Stock Exchange added to RadioShack’s woes last week when it notified the chain that it’s out of compliance with listing requirements. The company has six months to get back in line by boosting its stock price to at least $1 on the last trading day of the month and having an average closing price at that level over a 30-day period.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, James Callan


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Companies Mentioned

  • RSH
    (RadioShack Corp)
    • $0.91 USD
    • -0.05
    • -5.89%
  • WAG
    (Walgreen Co)
    • $62.88 USD
    • -0.30
    • -0.48%
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