Sprint scores 1,750 new retail stores via deal with bankrupt RadioShack

Sprint (NYSE: S) said it will more than double its U.S. retail store footprint by purchasing around 1,750 stores from now-bankrupt electronics retailer RadioShack.

"Under the terms of the new agreement, Sprint would effectively operate a store within a RadioShack store, occupying approximately one third of the retail space of each location," Sprint said. "Sprint employees will sell mobile devices and plans on all Sprint brands including Boost and Virgin Mobile. The stores will be co-branded with Sprint being the primary brand on storefronts and in marketing materials."

Terms of the deal, which still requires approval from the bankruptcy court, were not disclosed. The announcement doesn't come as a complete surprise; published reports had hinted at discussions between RadioShack and Sprint.

Concurrent with its agreement with Sprint, RadioShack said it will file for Chapter 11 bankruptcy. As part of its bankruptcy filing, RadioShack will sell up to 2,400 of its stores to hedge fund Standard General. Sprint would operate roughly 1,750 of those stores.

The remaining RadioShack stores will be shut down--bringing an end almost 100 years of RadioShack's stand-alone retail brand. RadioShack said it currently owns 4,000 company-operated U.S. stores.

"We've proven that our products and new offers drive traffic to stores, and this agreement would allow Sprint to grow branded distribution quickly and cost-effectively in prime locations," said Sprint CEO Marcelo Claure in a release. "Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other's customers."

Prior to the RadioShack deal, Sprint owned around 1,100 retail stores. Now, thanks to its RadioShack transaction, Sprint is likely to surpass the number of stores T-Mobile US (NYSE:TMUS) owns. During Sprint's recent quarterly conference call, Claure said Sprint currently owns 500-600 fewer stores than T-Mobile does.

"Sprint's deal is a smart way to dramatically increase its footprint of company-owned retail locations. It's lagged behind its three major competitors in terms of company-owned store footprint," wrote Jackdaw Research analyst Jan Dawson. "This gives Sprint both a much bigger opportunity to capture walk-in business from customers and a much better mix of owned versus indirect distribution, which should have a positive effects on a number of other metrics. The fact that Sprint employees will be staffing the stores within a store is a major advantage, too, compared with third party retailers."

Others praised the move too: "Despite the 'quirkiness' of the Radio Shack stores, the locations of many of these outlets are attractive," wrote Wells Fargo analyst Jennifer Fritzsche. "As the T and VZ stores become more technology centers, we believe Sprint needs to create a better touch point for its potential subscribers in order to be relevant with the higher credit segment (which is clearly its focus)."

But there remain questions surrounding the deal. BTIG analyst William Frohnhoefer wrote that RadioShack's bankruptcy filing makes no mention of Salus Capital Partners or Cerberus, RadioShack's second lien lenders--possibly signaling conflict in its bankruptcy plans. Further, Frohnhoefer notes that RadioShack in its Securities and Exchange Commission filings says that it doesn't own any of its stores, it only leases them. But in its bankruptcy announcement, the company talks about "company-owned stores."

William Ho, an analyst at  556 Ventures and a FierceWireless contributor, largely applauded the Sprint-RadioShack deal, but also pointed out some concerns. He said that the integration process will likely take time, and likely won't help Sprint's progress in the market until later this year. He also added that, since the financial terms of the deal weren't disclosed, it's unclear how this will pay off for Sprint, particularly given the sagging value of RadioShack's brand.

For more:
- see this Sprint release
- see this BTIG post
- see this Ho post
- see this Wall Street Journal article

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Article updated Feb. 6 with additional commentary.