Moody’s: RadioShack could run out of cash next year

07/29/2014 1:28 PM

07/29/2014 1:29 PM

Shares of RadioShack Corp. tumbled another 12 percent on Tuesday after Moody’s Investors Service warned that the struggling consumer electronics retailer is in danger of running out of cash before it can complete a turnaround.

Without a capital infusion, RadioShack will probably face a cash crunch by the quarter ending Nov. 1, 2015, Moody’s said in a report. While the Fort Worth-based company has no debt coming due until 2018, operating losses will hurt liquidity and hobble any 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,” said Mickey Chadha, a Moody’s analyst in New York, in an interview.

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

Shares of RadioShack (ticker: RSH) lost 9 cents to close at 68 cents a share on the New York Stock Exchange. Last week, the exchange notified the chain the company that it has six months to boost its stock price to at least $1 a share for a certain time period or it will be delisted. It has been trading below the $1 mark now for more than 30 days.

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., has tried cutting costs, closing stores and revamping others to focus on mobile devices.

In the first quarter, the company’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.

Magnacca’s turnaround effort hit another snag earlier this year when creditors blocked a plan to shut as many as 1,100 underperforming stores, forcing RadioShack to limit closings to as many as 200 instead.

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

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