Fitch: No Sign of Turnaround at RadioShack
NEW YORK & CHICAGO -- October 23, 2013
RadioShack's weak third-quarter results underscore the challenge in producing
a turnaround in the company's operations, according to Fitch Ratings. The
company Tuesday reported an 8.4% comparable stores sales decline and a nearly
800-bp gross margin contraction.
The third-quarter weakness is a partly a function of inventory clearance,
which will enable the company to have cleaner stores as it moves into the
holiday season. However, RadioShack is still in the early stages of expanding
its merchandise offerings in growing categories such as headphones and
portable speakers, and sales from these categories will not likely be
sufficient to offset the secular declines in the company's existing mobility
and consumer electronics businesses for at least the next 12 months.
EBITDA was negative $69 million in the 12 months ended Sept. 30, 2013, and
Fitch estimates it will be in the negative $80 million to $100 million range
for the full year. Broadly assuming annual capex of $50 million and interest
expense of $40 million, as well as some benefit to working capital from the
planned inventory reduction, free cash flow (FCF) could be in the negative
$100 million range for the full year.
RadioShack's liquidity will be sufficient to cover this expected negative FCF
and a fourth-quarter seasonal working capital swing estimated at $150 million
to $250 million. As of Sept. 30, 2013, available cash stood at $316 million
and revolver availability was $296 million. In addition, the company has
obtained commitments for new five-year debt facilities that will provide $175
million of incremental liquidity in the form of new term loans and revolver
However, the incremental cash liquidity may only serve to offset the higher
losses incurred during the second half of the year, leaving the company's
liquidity position unchanged or only modestly improved at the end of 2013
versus Fitch's prior expectations. Looking beyond 2013, FCF could continue to
track at negative $100 million or more annually, and this will gradually eat
into the company's cash liquidity.
Pro forma for the new financing, the company's nearest debt maturity will
occur in 2018 when the new $585 million senior secured ABL credit facility and
new $250 million secured term loan will mature. The only other component of
RadioShack's debt structure is a $325 million senior unsecured note issuance
that matures in May 2019.
Additional information is available on www.fitchratings.com.
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Philip Zahn, CFA
+1 312 606-2336
Fitch Ratings, Inc.
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Brian Bertsch, +1-212-908-0549 (New York)
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