The stock price of RadioShack Corporation (NYSE:RSH) plummeted more than 11% to $0.68 per share after Moody’s Investors Service issued a warning that its cash may be depleted before it can complete a turnaround.
Operating losses hurt RadioShack liquidity
According to Moody’s RadioShack Corporation (NYSE:RSH) will probably run out of cash during its November quarter in 2015 if it does not have any capital infusion. The credit-rating agency emphasized that operating losses would hurt its liquidity and hinder its turnaround even if it has no debt due until 2018. Moody’s also pointed out that suppliers could pull their support due to its continued cash burn.
Moody’s analyst, Mickey Chadha 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. “ He added, “The big takeaway on all these initiatives from the CEO is that they haven’t reduced the cash burn at the company.”
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Moody’s Investors Service issued a Caa2 rating for RadioShack Corporation (NYSE:RSH) with a negative outlook. The rating is eight levels below the investment grade. Its liquidity was rated SGL-3, which signifies that the electronic retailer has enough cash for the next 12 months.
RadioShack Corporation (NYSE:RSH) continues to suffer sales decline and losses
RadioShack Corporation (NYSE:RSH) hired Joe Magnacca, a former executive at Walgreen Company (NYSE:WAG) as chief executive officer in February last year to lead its turnaround efforts.
Magnacca implemented different measures to improve the financial performance of the struggling electronics retailer including cost cutting, renovating stores and closing others and focusing on mobile devices.
Despite the efforts of its CEO, RadioShack Corporation (NYSE:RSH) continued to incur losses and suffer from sales declines. During the first quarter, the electronics retailer’s loss increased from $28 million to $98.3 million while its sales dropped 13% to $736.7 million.
Creditors opposed RadioShack Corporation (NYSE:RSH)’s planned store closures
Earlier this year, RadioShack Corporation (NYSE:RSH) announced its plan to close 1,100 stores as part of its turnaround efforts, but its lender blocked the plan. The company was compelled to limit the number of stores it would close to 200.
“The terms on which the lenders are currently willing to provide this consent are not acceptable to the company. While the company may continue to have discussions with its lenders regarding the proposed store closure program; the company is continuing with a plan to close fewer stores and pursuing other cost reduction measures permitted under the existing terms of the 2018 Credit Agreement and 2018 Term Loan,” according to the previous statement of RadioShack Corporation (NYSE:RSH).