Sprint Nextel (S) could be in for a tough fourth quarter if results from retailer RadioShack are any indication. Sprint Nextel is set to release its Q4 2011 results on Feb. 8.
The retailer cited “underperformance” by Sprint Nextel’s postpaid business for a decrease in gross margins during the final three months of 2011.
“The company’s results for the fourth quarter are due in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models,” RadioShack noted in a press release late yesterday. “These changes resulted in fewer new and upgrade activations and a decline in Sprint postpaid revenues in the fourth quarter compared to the 2010 fourth quarter and compared to third quarter 2011.”
By comparison, RadioShack noted that sales of devices and services for Verizon Wireless (VZ) and AT&T Mobility (T) had increased during the quarter.
Analysts seemed to downplay the news, noting that recent comments by Sprint Nextel regarding churn and tightened credit checks had already been modeled into forecasts. Wells Fargo Securities noted that RadioShack typically accounts for less than 10% of Sprint Nextel’s gross customer additions per quarter and that it had recently lowered its net addition forecast for Sprint Nextel to 180,000 subscribers for the fourth quarter.
Macquarie Equities Research noted that RadioShack did not receive shipments of Sprint Nextel’s iPhone inventory until more than a month after the carrier had launched the device. Sprint Nextel’s management had indicated that the device launch was heavily front-loaded, indicating that RadioShack may have missed out on the bulk of those device sales.
“While we don’t cover [RadioShack], the comments on postpaid weakness from Sprint come as no surprise to us as Sprint [management] has been very clear about tighter credit policies on [RadioShack gross adds in Q4 and their impact on churn,” noted Macquarie Equities Research in a report. “We think lower net adds of [150,000 to 175,000] are widely known and down from [280,000] earlier in the [quarter].”
Verizon Wireless and AT&T Mobility released robust fourth quarter results last week that showed a strong influence from the launch of Apple’s latest iPhone 4S device. That influence included strong sales and customer growth tempered by the costs associated with having to subsidize those sales.
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