billddrummer

Best Buy: Flat Screens and Flattish Shares Make for Good Profits

Excellent writeup, and a good primer for those of us who aren't as astute with option plays.

Thanks.

Are Best Buy's Earnings a Warning?

On Sep 16 03:08 PM Rwong8200 wrote:

> BB has a great deal going against them the balance of the year.<br/>Average
> retail price of all CE laptops, LED Tv, game consoles, navigation
> all falling by 15 to 20%. Digital deadline in June pulled forward
> millions of TV purchases. Cell Phone competition tougher and those
> prices are falling also. Last year $600 stimulus checks a Huge percentage
> were spent on CE. One year from now they should blow away comps.
> We are not seeing the usual nesting boom we have seen in past recessions.
> Finally BB has big presence in states hardest hit by the recession.
> Finally Amazon and internet have taken business on smaller shippable
> products. I sold BB position in August.

Looks like you left money on the table.

Apart from that, good analysis.

Some rejoinders:

BBY is still best in class for CE retailing, with a broad product mix and knowledgeable salespeople.

The GPM has stabilized this quarter, and I expect it to rise as services revenue becomes a larger portion of total sales.

SG & A expense margin increase resulted from a higher cost business model for Best Buy Europe. SG & A expense in the US was flat, despite the comp-sales declines.

Leverage is low, and 16X forward earnings seems a reasonable entry target.

Efficiency is improving, as shown by lower inventory carry despite a higher store count.

Disclosure: Long BBY in its ESPP.

Back-to-School Retail Winners

I've seen upside breakouts at BBY from a personal level (proprietary). The company appears to be successfully competing with TGT and WMT for bargain shoppers.

Stalling Out in July? Clear Signs of a Pullback in Consumer Spending

I agree with conceptwizard. Consumers are paying down debt and rebuilding their savings, which will take years.

After all, it took years to get overleveraged.

Weekly Unemployment: Lying with Numbers

Thank you for this article. It's too bad that most people won't go past the headlines and presume things are actually improving.

Except for the ones that just got laid off, are looking for work and watching their savings fall, or just got their benefits cut off.

Those folks understand the pain behind the headlines.

Best Buy Reaction Could Reflect Sentiment Change

To KSTHANE,

You're right. But it's a slowly shrinking pie, and AMZN has shown sales growth rates above 20% in the last 3 quarters. So while BBY did pick up share, AMZN's sales are rising much faster.

Whether the company plans to alter its price match policy (no internet price match unless a retail outlet exists within the service area) remains to be seen. It may become necessary to continue to grow market share, even if margins suffer in the short run. The hope is that a positive experience will draw customers back to the stores for additional purchases.

Time will tell, as it always does.

Less Buying at Best Buy

BBY is best in class for brick and mortar consumer electronics.

Having said that, the website is clumsy, and AMZN has stripped off the mid- to upper-tier CC customer, while WMT is the #1 CE destination for households earning less than $50,000 a year.

So the Street's anticipated sales bump didn't materialize. But I still believe the company will present a good long term opportunity after the economy recovers. If you look at the financials, the gross margin has improved and fixed costs are down primarily because of the various initiatives that tweaked store staffing, bonus accruals and back office organization.

Disclosure: Long BBY in their ESPP.

Less Buying at Best Buy

BBY is best in class for brick and mortar consumer electronics.

Having said that, the website is clumsy, and AMZN has stripped off the mid- to upper-tier CC customer, while WMT is the #1 CE destination for households earning less than $50,000 a year.

So the Street's anticipated sales bump didn't materialize. But I still believe the company will present a good long term opportunity after the economy recovers. If you look at the financials, the gross margin has improved and fixed costs are down primarily because of the various initiatives that tweaked store staffing, bonus accruals and back office organization.

Disclosure: Long BBY in their ESPP.

Best Buy Reaction Could Reflect Sentiment Change

I posted this on another thread immediately before earnings came out:

There's good evidence that a lot of the higher end sales that CC formerly captured have migrated to online retailers, principally AMZN. Mid-tier and lower consumers migrated to WMT.

So instead of BBY capturing CC sales, low-end customers went to WMT (and COST, to a lesser extent), while higher end shoppers use AMZN (sales growth has been explosive since CC fell).

I continue to believe that consumer electronics will have a bricks and mortar component, but revenue will become harder and harder to gain domestically with the sheer number of competing channels for the consumer dollar.

After all that, I'm still long BBY, because I believe they continue to be 'best in class' in nationwide consumer electronics sales, a niche of specialty retail that hasn't suffered as much as others during the recession.

Best Buy Q1: Earnings Top Estimates, Market Share Increases

An 'as expected' report. Softness in majaps isn't surprising, and additional marketing incentives by Sears/KMart during the latter half of the quarter made a material impact on that sector's sales.

The other item that's at work is that the new store operating model caused some disruption on the sales floor, as was to be expected. I'm frankly encouraged that same store sales didn't fall by more than 6%. In some cases, longer-term employees elected severance instead of learning the new model. In my store, those employees were by far the best salespeople.

Looking forward, I expect flat earnings in the second quarter, with profit growth resuming in the latter half of the year.

Consumer Electronics Sales May Not Be as Bad as Data Suggest

A codicil:

That tends to mute the impact on BBY, since at the outset, many people thought that BBY would capture the lions' share of CC sales. As is evident, that hasn't happened.

One wonders if displaced CC customers will ever go back to a purely CE bricks and mortar operating model. It didn't work for them when the company was around, and it doesn't seem that their absence has translated into markedly higher sales for the remaining outlets in the sector.

Consumer Electronics Sales May Not Be as Bad as Data Suggest

There's good evidence that a lot of the higher end sales that CC formerly captured have migrated to online retailers, principally AMZN. Mid-tier and lower consumers migrated to WMT.

Technology Retailing: Best Buy and... Radio Shack?

The new BBY operating model may have produced your frustration with the sales staff. All stores are undergoing a transformation in staffing, with senior level sales staff and department management positions severely curtailed. Along with that, many sales staff people have been reassigned to departments they are unfamiliar with.

In the short run, the implementation will probably retard sales and earnings for the next 2 quarters. In the long run, I believe the disruptions will even out.

But I do agree with you that the lack of a viable national competitor may induce BBY to rest on its laurels--the absolute worst thing you can do in retail.

Competition is welcome. Where it comes from is anyone's guess.

Disclosure: Long BBY.

Is the Bear Market Over?

Initial unemployment claims gapped downward for two weeks running. That statistic has marked the end of the last 5 recessions.

Now that doesn't mean that jobless rates won't continue to rise through the Muddle Through period (apologies to John Mauldin). But it does suggest that the worst of the declines are behind us.

Now, if only inflation remains in check????

Best Buy: Our Sales Staff Rocks, So We're Cutting Their Salaries

You're correct that this plan seems to smack disturbingly of what CC did to its sales force.

In defense of the BBY, CC had some other structural problems that spelled doom before the company fired its most productive salespeople. Paying lease costs on closed stores ($150 million annually), consistently lagging BBY in gross profit margin (a trend that accelerated in 2005), and generating negative FCF for nearly 2 1/2 years had as much, if not more, to do with the company's demise.

BBY enjoys good gross margins, strong FCF, low leverage and a dominant presence in consumer electronics retailing. (But I will concede that the web site stinks.)

The plan will eventually wring millions out of SG & A expense. It will be interesting to see whether sales and margins hold up under the new structure. If they do, a $60 price target within a year isn't out of the question. If they don't, well, good knowing you.