Best Buy Co Inc (NYSE:BBY) reports fourth-quarter earnings Tuesday and we already know the retailer enjoyed strong holiday sales. What the market really needs to hear is a sunnier outlook, and thanks to some recent developments, BBY might even be able to deliver it.
BBY stock tanked in mid-January when it offered a disappointing full-year forecast even as it celebrated a very good holiday selling season.
Among the issues weighing on BBY ahead: Deflationary pricing, weak industry demand, declining demand for extended warranties, exchange-rate volatility and increased investment.
Make no mistake — BBY’s future remains very much in doubt. Consumer electronics retailers with bricks-and-mortar operations have been struggling for years, under assault from both online outfits like Amazon.com, Inc. (NASDAQ:AMZN) and low-price discount retailer like Wal-Mart Stores, Inc. (NYSE:WMT).
That said, it’s possible that the consumer electronics market could support at least a single national chain, and now that Radio Shack has filed for bankruptcy protection, there’s a chance BBY could be it.
BBY is getting high marks from at least some analysts for the investments it has been making in its stores and website — investments paid for by about $1 billion in costs cuts — as well as some initiatives to highlight what BBY offers over the competition.
BBY’s Blue Shirt associates, for example, are highly trained salespeople able to answer customers questions about any product. Analysts point out that that’s a level of customer service online retailers and discounters can’t match, and it matters to a subset of shoppers.
At the same time, BBY rolled out a price-matching program in order to compete with larger, cheaper retailers.
BBY — Another Buy on the Dip?
For the final quarter of 2014, Best Buy earnings are forecast to climb to $1.35 per share from $1.24 per share a year ago, according to a survey by Thomson Reuters. Revenue is projected to slip almost 1% to $14.35 billion.
Best Buy earnings should have a very good chance of beat Wall Street’s expectations for the quarter, if only because analysts have routinely been too pessimistic. Indeed, Best Buy earnings have exceeded analysts’ average estimate for eight consecutive quarters. By demolishing its outlook for this year back in January, BBY gave itself very low bar to hurdle.
If Best Buy earnings can beat Street estimates and offer even the thinnest reed of hope for the next couple of quarters, we could see a repeat of the trend BBY stock has carved out over the last couple of years.
Best Buy stock was one of the best performers of 2013, only to give much of it back on holiday weakness. Shares went on to recover, however, as BBY stock gained 65% between February 2014 and the end of the year.
As for this year, BBY stock has been similarly working its way back from a January plunge once again. Indeed, Best Buy stock is up 13% since then to beat the broader market by about nine percentage points.
Given the existential uncertainty facing bricks-and-mortar consumer electronics retailer, Best Buy stock doesn’t have much of a place in any long-term portfolio. As much progress at it has made, it might not exist in five years.
As a trade, however, it sure wouldn’t be surprising to see Best Buy stock beat the S&P 500 this year. Whether it deserves to or not, BBY stock keeps getting pounded — and keeps roaring back.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
