Update: RadioShack's Cash Crunch Confirmed By Moody's

Jul.31.14 | About: RadioShack Corporation (RSH)

Summary

On July 30, Moody's issued a warning stating that RadioShack will face a serious cash crunch by November of 2015.

This warning solidifies my opinion that RadioShack is going to go bankrupt.

Moody's agrees with my original thesis that RadioShack cannot cut costs fast enough to survive collapsing comparable store sales.

Moody's issued a warning regarding RadioShack's (NYSE:RSH) turnaround effort on July 30, claiming that without a cash infusion, the company will run out of cash by the third quarter of 2015. At the end of the most recently reported quarter, RadioShack had just $62 million in cash, along with $362 million in available liquidity under its 2018 credit agreement.

As I pointed out in my previous article, this credit agreement prevents RadioShack from closing more than 200 stores per year, far less than the original goal of 1,100. With comparable store sales declining in the double digits and operating expenses eating up nearly half of revenue, losses will continue to eat away at RadioShack's liquidity as time goes on. In the previous quarter alone, RadioShack recorded an $81 million operating loss.

RadioShack needs double-digit comparable store sales increases over the next year in order to turn the tide, but there is no sign that the current trend is reversing. Raising more cash will be difficult, given that the stock now trades well below $1 per share and the yield-to-maturity on the company's outstanding bond issue is over 30%. Both Moody's and the bond market seem to agree with my original thesis that RadioShack has almost no hope of avoiding bankruptcy at this point.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.