Big-box retailer Best Buy Co. Inc. (BBY, Financial) is riding the comeback of brick-and-mortar retailers, which seems to be restoring its competitive advantage against Amazon.com Inc. (AMZN).
Last week, the company said in its earnings results that enterprise comparable sales increased 37.2% from last year, while its GAAP diluted EPS was up 280%. Best Buy's solid financial results follow a similar performance by other brick-and-mortar relations like Walmart (WMT), Target (TGT), Lowe's Companies Inc. (LOW) and TJX Companies (TJX).
Over the past three years, Best Buy's sales increased 9.4%, while its Ebitda rose 14%.
| Company | Best Buy | Walmart | Amazon |
| 3-year Revenue Growth (%) | 9.4 | 5.7 | 28 |
| 3-year EBITDA Growth (%) | 14 | 8.7 | 45.2 |
| Current Operating Margin (%) | 6.24 | 4.31 | 6.63 |
| Average Annual Total Return (2010-20) | 13.07 | 13.71 | 34.75 |
| Market Price | $116.90 | $142.4 | $3,222.4 |
| My Intrinsic Value Estimate | $97.96 | $128.17 | $3,465.4 |
In a statement, CEO Corie Barry attributed the company's strong performance to the rising customer demand for technology products and services in the new social landscape, where homes assume multiple roles in people's lives:
"Customer demand for technology products and services during the quarter was extraordinarily high... This demand is being driven by continued focus on the home, which encompasses many aspects of our lives, including working, learning, cooking, entertaining, redecorating, and remodeling. The demand was also bolstered by government stimulus programs and the strong housing environment...
Our teams across the organization met the demand with remarkable execution. From our merchant and supply chain teams working behind the scenes to our Blue Shirts and Geek Squad agents on the front lines – our employees once again showed amazing flexibility and execution managing extraordinary volumes."
Best Buy's strong performance was a big turnaround from more than a decade ago when Amazon's arrival in the e-commerce retail space turned its most important assets, location and scale, into liabilities. Then, in what has come to be known as "showrooming," customers did their window-shopping at Best Buy and their actual shopping at Amazon.com, which offered better deals. As a result, Best Buy's revenue, profits and stock were crushed, with business strategists and stock analysts predicting the slow decline and fall of the company.
But BestBuy survived and thrived, delivering an average annual total return of 13.07% between 2010 and 2020. That's thanks to the company's strategy "Renew Blue," launched seven years ago, which helped Best Buy capitalize on the benefits of scale and location by using stores as warehouses and pick-up places to speed up online order delivery.
Then there's also the expansion of product offerings in each store location to catch up with emerging consumer electronics trends like home theaters and computing, health technology solutions and assured living.
Finally, the concept of stores within stores was also implemented, with electronics giants Samsung (XKRX:005930) and Microsoft (MSFT) opening up in Best Buy stores. In essence, the company shifted the cost of showrooming to these manufacturers.
Meanwhile, the company benefited from the synergies associated with increased customer traffic and the efficient and effective deployment of its Geek Squad to customers who need services for their electronic devices.
In short, Best Buy seems all set for a comeback resulting from a shrewd strategy that leveraged its core assets, scale and location to address a new retailing trend, the merger of online and offline sales, and regain its competitive edge.
Disclosure: No positions.
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