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.
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