Moody’s: RadioShack may run out of cash

Fort Worth, Texas – Financial woes continue for RadioShack, which was recently notified it is in danger of being delisted by the New York Stock Exchange. According to a new report from Moody’s Investor Service, RadioShack is likely to run out cash by the end of October 2015.

Although RadioShack has no debt maturities coming due in the next year, the company's cash balance at the end of its fiscal first quarter 2014 was $62 million, compared to $180 million at the end of calendar year 2013. Moody's expects RadioShack to rely increasingly on its unrestricted cash balances as operating losses will likely continue for the rest of the year and free cash flow remains negative during the next 12 months.

Unless RadioShack can orchestrate a successful turnaround in the next 12-18 months and improve customer traffic in its stores, Moody's says the company's liquidity will continue to deteriorate and it will start to lose vendor support. Under Moody's base case scenario, sales will fall 7.4% in 2014, leading to RadioShack burning approximately $401 million of cash in fiscal 2014 (ending Feb. 1, 2015). Under this scenario, barring any infusion of additional cash, the company will run out of liquidity at the end of third quarter fiscal 2015 in October 2015).

Under a second, more optimistic scenario, with sales falling 4.6% in 2014, cash flow from operations will still not be sufficient to cover capital expenditures and will result in a cash burn of $267 million in 2014 and about $142 million in 2015. The company's liquidity will be around $338 million for fiscal 2014 and $196 million for fiscal 2015. Even in this optimistic scenario, earnings before interest, taxes, depreciation and amortization (EBITDA) remains negative through fiscal 2015.

RadioShack had planned to close about 1,100 stores in the U.S. as part of an attempt to improve profitability. However, the terms on which its lenders were willing to provide the consent for its store closure program were not acceptable to the company and it is therefore scaling back the closures. Moody's rates RadioShack Caa2, with a negative outlook.

"The company's deteriorating liquidity profile and dismal earnings give very little cushion to RadioShack to execute its turnaround strategy over the next several quarters," said Mickey Chadha, a Moody's VP and senior analyst. "Absent a credible turnaround strategy to improve sales growth and increase earnings, RadioShack will be hard pressed to remain relevant in the increasingly competitive mobile phone and consumer electronics business."

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