RadioShack’s (RSH) Situation Getting Shakier

Standard & Poor’s has further lowered its corporate credit rating on RadioShack (RSH) one notch to ‘CCC’ from ‘CCC+’, citing the company’s poor profitability and its “very weak” operating trends, which have led to significant liquidity usage. The rating outlook is negative, meaning the once-dominant consumer electronics retailer is dependent on favorable financial and economic conditions to meet financial commitments.

S&P’s credit analyst Charles Pinson-Rose said [via Streetinsider] “The downgrade reflects the company’s very weak operating trends, which have led to significant liquidity usage. Even if performance trends moderate, we expect the company to be using cash over the near term. We currently expect that the company has liquidity sources to finance the operating losses and working capital needs in the current fiscal year (ending January 2015), but the company would have very small amounts of liquidity early next year, which could lead to a liquidity crisis and default or the company’s decision to seek a financial restructuring.”

Last week, RadioShack reported a Q1 loss of $98.3 million, or $0.98 per share, from $23.3 million, or $0.28 per share, a year ago. The Fort Worth-based consumer electronics retailer said its net sales for the 13-week period ending May 3, fell 13.2% from the prior year.

Following RadioShack’s disappointing report, B. Riley & Co.’s Scott Tilghman cut his price target on shares of RadioShack to $0, saying “the odds of a bankruptcy filing are now over 50%”.

RSH fell 3.45% on Monday to close at $1.12. The stock has traded between $1.12 and $4.36 over the past 52 weeks.

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