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29 Jul 2014
New York, July 29, 2014 -- RadioShack's deteriorating liquidity gives the company a limited
window for executing a turnaround in sales and earnings, says Moody's
Investors Service in the report "RadioShack Liquidity Runway May
Not Be Long Enough for a Turnaround." Moody's says
that liquidity is adequate for another year, with no debt maturities
coming due, but that its base case scenario for RadioShack has the
company running through its liquidity by the end of October 2015.
"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," says Mickey Chadha,
a Moody's Vice President 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."
Moody's rates RadioShack Caa2, with a negative outlook.
The company's cash balance at the end of its fiscal first-quarter
2014 (3 May 2014) was $62 million, versus $180 million
at 31 December 2013. Moody's expects RadioShack to rely increasingly
on its unrestricted cash balances as operating losses will likely to continue
for the rest of the year and free cash flow remains negative over the
next 12 months, further curtailing liquidity.
Unless RadioShack can orchestrate a successful turnaround over 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 fall 7.4%
in 2014, leading to RadioShack burning approximately $401
million of cash in fiscal 2014 (ending 1 February 2015). Under
this scenario, barring any infusion of additional cash, the
company will run out of liquidity at the end of the third quarter of fiscal
2015 (ending 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 EBITDA remains negative through fiscal 2015.
The company had planned to close about 1,100 stores in the US 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.
For more information, Moody's research subscribers can access
this report at
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Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Janice Ann Hofferber
Associate Managing Director
Corporate Finance Group
Moody's: RadioShack liquidity may not be around long enough for turnaround
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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