Will Best Buy's Impressive Resurgence Continue?

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Jun 12, 2015

The rising competition from online retailer like Amazon (AMZN, Financial) has taken its toll on many consumer electronics retailers. Companies like Circuit City and RadioShack have fallen prey to the growth in the ecommerce market; however, one company that has impressively survived this trend is Best Buy (BBY, Financial). Although it once looked like Best Buy is going down the same lane as RadioShack, the company has managed to turn itself around and is finally delivering. The company reported strong quarterly numbers, sending the shares higher.

Strong quarter

Best Buy’s revenues jumped 1.4% year-over-year to $7.8 billion while gross profit jumped by 2.6% to $1.8 billion. Adjusted margin grew 20 basis points to 22.9% thanks to favorable product mix and robust performance of the credit card portfolio.

Best Buy finished the quarter with cash and cash equivalents of $2.17 billion versus of $1.22 billion. The company’s improving balance sheet shows that its turnaround is complete and the fact that it recently declared a dividend of $0.23 per share is another vote of confidence. While buying the stock just because of a good quarter is unreasonable, Best Buy has many tailwinds that can fuel its future growth.

Growing market share

NPD-reported consumer categories constitute around 65% of Best Buy's sales. As per NPD, consumer electronic sales were down 5.3% during 13 weeks ending on May 2. However, Best Buy's comps for the time period were down a miniscule 0.7%. This implies that Best Buy is gaining share from its peers. The company has managed to slash prices and stay competitive in the past and this has led to significant market share gains. Due to the companies continued cost-cutting initiatives, I expect it to record further market growth, benefiting its top-line.

Another positive for Best Buy is its Renew Blue strategy. The Renew Blue initiative is a second phase strategy that focuses on eliminating waste and driving efficiencies in the processes. Best Buy expects to save $400 million from this imitative. Best Buy's phenomenal execution of its omnichannel method and its creative small scale store idea will permit the organization to flourish. The small store idea was likewise an uncommonly splendid move and makes a lot of worth for Best Buy's clients.

Conclusion

Best Buy has definitely proved the doubters wrong. Although the company still faces competition from online retailers, its future strategies ensure that it will be able to compete against them. The company’s strong market share growth, along with its cost-cutting moves, will benefit the company in the long-run. The company is attractively priced and also has a good dividend yield. Hence, I think Best Buy is a great buy and investors should add it to their portfolios.