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Best Buy's Slowdown Shouldn't Worry Long-Term Investors

September 25, 2014 | About:

Best Buy (NYSE:BBY) witnessed a slowdown in its revenue for the second quarter due to the growing desirability of online shopping. Meanwhile, its rivals such as Wal-Mart (WMT) and Amazon (AMZN) have also struggling with their results in their last reported quarter. In addition, the recent report by the Commerce Department unveils the indifference of consumers in the retail segment. So, can Best Buy get back on track?

A closer look at the performance

The Richfield, Minnesota-based company reported a decline of 4% in its sales to $8.9 billion year over year, falling short of analysts' expectation of $9 billion in revenue for the second quarter 2015. The decline was largely due to increasing competition from online giants like Amazon.com (AMZN ) and soft environment in the consumer retail industry. In addition, the delay in key products launches also impacted its sales during the second-quarter. However, its earnings of $0.44 per share outpaced the analysts’ estimates of $0.31 earnings per share for the second quarter, and accelerated approximately 38% as compared to earnings of $0.32 per share last year in the same period.

While Wal-Mart posted an increase of 2.8% in the earnings for the quarter, it has lowered the earnings forecasts for the year. Wal-Mart now expects earnings per share to range between $4.90 and $5.15 per share, which is below its earlier guidelines of $5.15 to $5.45 earnings per share for the full year.

Renew Blue priorities to drive its growth ahead

Best Buy expects its "renew blue priorities" to accelerate sales momentum in the future, as these priorities are expected to infuse life for the e-commerce segment amidst growing online traffic, enhance on-store conversion for the company, and focus on the recent shift in consumer spending pattern and behavior. These priorities are also expected to enhance its multi-channel competences by way of improving quality of service and convenience, and develop competitive prices that should drive margins for the company in the second half of the year.

Best Buy’s re-energized transformation structure was developed by keeping an eye on merchandising, marketing, online stores, Greek Squad services, supply chain, cost configuration, and employee engagement. The company is observing improved outcomes in each of these categories, and expects these categories to contribute significantly to its sales going forward, driving growth for Best Buy, as well as delivering values to the shareholders. Let’s look at the potential initiatives under each category that could boost its performance in the second half of the year.

Best Buy looks committed on raising slabs in its retail channels across the country and offering a fascinating and distinguished customer experiences for most of its product groups such as mobile, appliance and home theater. Best Buy has recently initiated installment billing plans for its customers as it developed healthy relationships with the top three mobile carriers in the United States. Further, the company remains on track to capitalize on the new launches, while strengthening its installment billing plans.

Performance of the segments is strong

Moreover, Best Buy’s appliance division has potential as the company plans to launch approximately 115 stores across the country on the top of 67 new stores it had opened last year. It has inaugurated about 18 new pacific kitchens and home stores since the beginning of the fiscal year.

Its home theater merchandising looks even more compelling this year as the company released seven new Magnolia design center stores within its stores across the country in the first half and remains committed to inaugurate another 47stores in the second half of the year. Best Buy had opened around 33 stores last year. The company is seeing tremendous traction with respect to these premium stores that has exceeded its expectations in the second quarter.

In addition, Best Buy has expanded its home theater division as it opened approximately 800 new Samsung and Sony home theater stores within its stores. Further, these stores are now facilitated with the 4K TVs or world-Class ultra-high definition TVs, which are gaining tractions in the market and the company expects these stores to fetch handsome amount of customers to its fleet.

In addition, its marketing initiatives are expected to complement its growth going forward as the company has now shifted its marketing concentration to digital media advertisements and away from legacy print and television promotions. The company is leveraging its Athena customer database as it plans to customize marketing messages to individual customers with its email campaigns.

Furthermore, Best Buy continues to roll out its ship from store and enhance website utilities in its online business. It has recently upgraded its websites with several new compelling activities that should deliver seamless customer experience going forward. It has recently developed a new global home page for its website with customer-friendly navigation options, upgraded with a richer visual and editorial content for its ultra-high definition, digital imaging in the health and wearable category.

Best Buy has also enhanced its text message options for order confirmation and delivery that is receiving positive response from customers across the country. Moreover, the company remains right on track to further launch various product categories in the second half of the year that will augment its capabilities and drive customer experience with additional motivational holiday gift center.


Best Buy is currently trading at the trailing P/E multiple of 10.41 and forward P/E multiple of 12.31 that shares cheap valuations for the stock and displays a lot of potential for the company in future. Also, its PEG ratio of 0.85 for the next five years indicates potential growth supplements for the stock going forward.

Its profit and operating profit returns for the trailing twelve months have not been up to the mark due to transformation phase but now having completed the transformation, the stock now looks pretty strong to yield handsome profit and operating profit going forward. Moreover, the analysts have estimated CAGR of 16.34%, higher than average industry CAGR of 14.39% expected for the next five years, which signifies tremendous growth for the stock in the future.

Rating: 1.0/5 (1 vote)



Bill3 - 4 years ago    Report SPAM

Best Buy is a dying company. They can not make it own their own and are beginning to sub-lease space. BBY is not competitive. You can beat their prices any day.

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