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22 Feb 2006
MOODY'S PLACES LONG AND SHORT TERM RATINGS OF RADIOSHACK CORPORATION ON REVIEW FOR POSSIBLE DOWNGRADE (SENIOR UNSECURED AT Baa1)
Approximately $500 Million of Debt Securities Affected
New York, February 22, 2006 -- Moody's Investors Service placed RadioShack Corporation's Baa1 long-term
rating, as well as its Prime-2 rating for commercial paper,
on review for possible downgrade based on Moody's concerns that
the company's earnings and cash flow may continue to be soft despite
the recently announced merchandising and storing initiatives, given
the intensely competitive retail environment and the absence of a permanent
Chief Executive Officer.
Ratings under review for possible downgrade:
Senior unsecured issuer rating, notes, and medium term notes
Senior unsecured shelf at (P)Baa1
Commercial paper at Prime-2
Moody's review will focus on (1) RadioShack's plans to improve
comparable store sales and store productivity through introduction of
faster-moving merchandise and a better shopping experience;
(2) likely benefits to long-term profitability and cash flow from
the announced closure of 400 to 700 of the company's approximately
4900 corporate-owned stores; (3) capital expenditure programs
to maintain its remaining store base and to expand its kiosk business;
and (4) financial policies regarding shareholder enhancement during the
18 months turnaround period. Based on the magnitude of the announced
store closings, modest growth prospects and uncertainty about senior
management, ratings are unlikely to be confirmed. However,
Moody's noted that RadioShack's liquidity remains solid, reflecting
committed bank facilities of $775 million and $224 million
in cash at December 31, 2005.
RadioShack's comparable store revenues in fiscal 2005 rose only
1%, hurt by underperforming wireless sales. Margins
further suffered with a shift from higher-margined to lower-margined
merchandise sales, and a fourth quarter inventory write-down
of $62 million. With a reported operating profit margin
of 4.7% in the recent fourth fiscal quarter, there
is the possibility that the company's EBIT margin based on Moody's
standard analytical adjustments will stabilize below the 9%,
a level that Moody's had previously noted as putting downward pressure
on RadioShack's ratings. While free cash flow was better
than expected at $158.5 million in fiscal 2005, the
company's very large share repurchases of $625.8 million
in 2005 had required the use of a portion of cash balances and the proceeds
from a sale/leaseback transaction.
In response to its anemic performance in fiscal 2005, the company
announced on February 17th that it would close 400 to 700 of its owned
stores, for a cost in fiscal 2006 of $50 million to 90 million.
In addition, RadioShack's turnaround plan will replace older,
slower-moving merchandise, expand its kiosk business,
and aggressively re-locate RadioShack stores to better real estate
over the next 18 months. Consequently, the company expects
free cash flow of only $50 million to $100 million in fiscal
2006. Initiatives to boost operating returns are likely to be complicated
by the resignation of the CEO, following his February 15th admission
that he had misstated his academic record. Chief Operating Officer
Claire Babrowski, who joined RadioShack in June 2005 after 30 years
at McDonald's Corporation, was promoted to president and acting
Headquartered in Fort Worth, Texas RadioShack Corporation is a leading
consumer electronics retailer with nearly 7000 company and dealer stores,
over 100 locations in Mexico and more than 700 wireless kiosks.
Revenues for the fiscal year ended December 31, 2005 were approximately
Corporate Finance Group
Moody's Investors Service
Elaine E. Francolino
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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