July Monthly Sales Report: Consumer Electronic Retailers Came Up Big

Includes: BBY, RSH
by: Clumsy Rick, CFA

This morning, the US Department of Commerce put out its monthly retail sales report for the month of July. It was a better than expected report with total sales, excluding autos, up 0.5% from June on a seasonally adjusted basis. However, even far more impressive was the data for consumer electronic (CE) retailers.

CE retailers in July showed a strong 1.4% sequential increase from June, making it one of the strongest retail categories last month. Importantly, this is not consumer electronic sales, but CE specialty retailer sales. It does not reflect sales by discounters or online only retailers. Thus, this strong growth was by retailers like Best Buy (NYSE:BBY), RadioShack (NYSE:RSH) and lots of smaller chains.

This report more than offsets a negative report out last night by NPD that showed weaker gaming sales last month. Gaming is an important part of sales for some retailers (only 5-10% for BBY), but clearly the US Commerce report shows weakness in gaming was more than offset by other categories. This is exactly the observations I had saw in most recent store checks as I wrote about here.

This increase in CE sales is quite impressive and bullish for CE retailers like BBY and RSH, which sold off after last month's US Commerce monthly sales report showed a slowdown in CE sales in June. Even more impressive is looking at the trend on a two-year basis. After bottoming out in May with a 0.5% increase in sales for CE chains on a two-year basis, June was up 2.4% and July was up 4.5%.

Some of the weakness last month in CE sales was related to strong industry appliance sales last year due to government rebate incentives. This impacted the industry negatively last month, but much less so for Best Buy and RadioShack. Best Buy only gets 5% of its domestic sales from appliances and RadioShack gets no sales.

Looking forward to August and September, the industry will start leaning into categories that are strong right now: Mobile phones and computers. Sales trends should continue to strengthen as we head into the back half of the year. Combined with industry valuations at or near all-time lows (BBY trades at 7.5x 2011 P/E, 2.7x 2011 EBITDA), I think this is one of the best times in history to be buying CE retailers.

Disclosure: I am long RSH, BBY.