Ahead of the Tape: Best Buy Doesn't Live Up to Name Lately -- WSJ
May 24 2016 - 3:02AM
Dow Jones News
By Steven Russolillo
In the latest retail rout, Best Buy Co. has held up better than
most. But don't expect it to last.
Shares of the electronics retailer are up roughly 9% this year,
far outpacing the S&P 500's small gain. Perhaps most
surprising, Best Buy's stock has been steady over the past few
weeks even as a slew of apparel retailers and department-store
chains, including Macy's Inc., Target Corp. and Kohl's Corp., have
tumbled following disappointing results.
The good times will be tested when Best Buy releases fiscal
first-quarter results Tuesday. The retailer already warned they may
be ugly due to slow demand for mobile phones and tablets. Analysts
polled by FactSet forecast earnings of 35 cents a share, down 6%
from a year ago. Revenue is expected to have dropped 3%.
The question is how much weakness is priced into today's share
price and whether its woes are transitory.
For now, at least, the market appears too optimistic. Chief
Hubert Joly warned the smartphone market was approaching a
saturation point. It is tough to see how sales of appliances and
other big-ticket gadgets will be able to offset weakness in
personal electronics.
It might be tempting to dismiss the fact that Best Buy's shares
appear to have been defying gravity recently. True, they are still
well off last year's highs north of $40 and essentially unchanged
over the past five years. Fetching roughly 11 times projected
earnings over the next 12 months, the stock is relatively cheap.
But it is cheap for a reason.
Consider the broader backdrop: Sales at electronics and
appliance stores dropped 2.4% in the first quarter from a year
before, according to the Census Bureau. And that followed a 3.6%
decline in the fourth quarter, the worst performance since
2009.
Rival home-electronics and appliance retailer HHGregg Inc.
warned last week that its consumer electronics business faces heavy
competitive pressure and will continue to be challenged "for the
foreseeable future." And of course online retailers, notably
Amazon.com Inc., are stealing market share.
In this difficult macro environment, Best Buy's shares have been
among the best of a rotten bunch. It may soon rejoin the pack.
tape@wsj.com
(END) Dow Jones Newswires
May 24, 2016 02:47 ET (06:47 GMT)
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