Best Buy Plummets 30%, Is Better Sell Following Abysmal Holiday Sales Update

Tyler Durden's picture




 

Despite several apparently well respected sell-side shops proclaiming that all would be well, the electronics warehouse missed comps (Sales at stores open at least 14 months were down 0.9 percent in the US (compared to expectations of +2.0%) and is being punished. Revenues fell 2.6% for the comparable period also. Shares are down 30% in the pre-market to 7-month lows as the company claims an "intensely promotional holiday season." It seems, perhaps, that following several other retailers' earnings updates the holiday season was even worse than many had expected (especially in the bricks-and-mortar stores that actually employ real people).

From the conference call:

  • *BEST BUY SURPRISED BY CONSUMER ELECTRONICS MARKET DECLINE DEC.
  • *BEST BUY: PRICE CUTTING WILL CONTINUE IN JANUARY
  • *BEST BUY: HIGHEST DISCOUNTS IN TV, MOBILE AND COMPUTERS

 

 

What did not work:

... our holiday revenues were negatively impacted by a number of factors, including: (1) the aggressive promotional activity in the retail industry during the holiday period, which we believe did not result in higher industry demand and had a deflationary impact on our revenue; (2) supply constraints for key products; (3) significant store traffic declines between “Power Week” and Christmas; and (4) a disappointing mobile phone market

But there is hope:

“Looking ahead, our holiday performance reinforces our resolve and our sense of urgency around our transformation. As a result, our key priorities going into fiscal 2015 are: (1) to more quickly and more deeply lower our cost structure; (2) to grow our online channel at an accelerated pace; (3) to continue to improve and innovate the multi-channel customer experience; (4) to enhance our marketing approach and effectiveness, particularly relating to personalization, targeting of customer segments and buying occasions; and (5) to reinvigorate and grow our Geek Squad services business. We will keep you updated on our progress on these initiatives throughout the year.”

 

In defense of our market share, and from a financial perspective, we made a significantly greater-than-expected year-over-year investment in pricing in the holiday period as Hubert previously discussed, and are projecting to continue to invest through the end of the quarter. In addition to this earnings impact for the fourth quarter, our Q3 FY14 earnings release quantified an additional impact that was estimated in the range of negative 60 to 70 basis points as a percentage of revenue versus last year’s fourth quarter (Q4 FY13) non-GAAP operating income rate of 5.7%. This range was comprised of the following: (1) the negative impact of pricing investments; (2) the negative impact of our $150 to $200 million in FY14 incremental Renew Blue SG&A investments; (3) the temporary negative impact of our mobile warranty costs; and (4) the negative impact of the economics of our new credit card agreement; all substantially offset by the positive impact of our $505 million in annualized Renew Blue cost savings. Now as a result of all of these impacts, partially offset by substantially better-than-expected “non-Renew Blue” cost reductions, we expect our fourth quarter non-GAAP operating income rate to be 175 to 185 basis points lower than last year’s (Q4 FY13) 5.7% non-GAAP operating income rate, excluding the impact of such items as restructuring charges and asset impairments.”

So just BTF30%D then?

But nobody is more embarrased this morning than Credit Suisse retail analyst Gary Balter who said the following just yesterday:

Best Buy: Still Our Best Buy

 

Best Buy will provide a holiday sales update tomorrow, in the midst of other retailers falling well short of expectations so far this Christmas season. This has led to a continued selloff in BBY's stock, a sharper selloff than even some retailers that have reported misses, as there has also been a share of profit taking after BBY's 237% gain last year. As we detail in this note, we believe the bad news may be already in this name.

No Gary, they are not.

It is not that we think that BBY had a blowout Christmas season, as we detail below, we believe sales were fine but margins are the unknown. However, we are here for a longer-term turnaround and the stock valuation, we believe, does not reflect that potential. The stock trades at 5.2x 2014 consensus EBITDA, and we believe, after a first half of investing, we will begin to see the benefits of the changes in the second half of 2014 and beyond. Among those changes are a better web presence, which is still not there, reducing losses in product returns, developing a consistent consumer loyalty and credit card program, and furthering retail vendor partnerships. These are multi-billion dollar opportunities and will play out over a few years period.

 

We remain in here for the long haul assuming the company continues to take advantage of the low hanging fruit still available to it. While Q4 may have been a bump in the road (again, we don't think so), this story, combined with AAP, remain our best risk/reward names in 2014. We appreciate those investors that want to wait  for the number as nearly all releases have sent stocks lower this season, but past Thursday absent some major change in direction, this is a place to be in 2014.

That's great, there is only one problem: this is not Amazon, where this kind of disappointment would lead to a 10% surge in the stock - this is an old school retailer where profits and traffic actually matter. Better luck to your clients next time though.

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Thu, 01/16/2014 - 09:16 | 4337359 wisehiney
wisehiney's picture

180,000 full and part time employees. CURRENTLY.

Thu, 01/16/2014 - 09:17 | 4337365 AlaricBalth
AlaricBalth's picture

Circuit City redux.

Thu, 01/16/2014 - 09:22 | 4337380 GetZeeGold
GetZeeGold's picture

 

 

Maybe they should start selling Obamacare.....or Justice Roberts should mandate buying a new flat screen to be the law of that land.

Thu, 01/16/2014 - 09:23 | 4337385 doomandbloom
doomandbloom's picture

I think its the POLAR vortex....everything should be fine next year.

Thu, 01/16/2014 - 09:28 | 4337402 GetZeeGold
GetZeeGold's picture

 

 

Tax credits would solve that problem.

Thu, 01/16/2014 - 09:40 | 4337434 I am more equal...
I am more equal than others's picture

 

 

 

Best Sell

Thu, 01/16/2014 - 09:57 | 4337486 eclectic syncretist
eclectic syncretist's picture

LOL!  Stores like Best Buy are predicated on the business model that people will be suckers for the fashionability of owning the newest iteration of something that is in actuality just another commodity.  Do you really need to toss your 65" TV for a 70" one?  Is a 5G really that much better than a 4G?  Is Windows 8 really better than Windows 7, Vista, or even XP?

The culture of the average American business model has gone way over the top towards marketing electronic commodities as consumable items meant to be immediately discarded as soon as the next iteration of the same old tired thing is manufactured in Asia and overmarketed here.  A business model based too heavily on marketing and not real substance is shaky at best. 

Thu, 01/16/2014 - 10:13 | 4337538 XitSam
XitSam's picture

I remember as early as the 1960s that it was a thing to buy a new car every three years.

Thu, 01/16/2014 - 10:22 | 4337567 Troll Magnet
Troll Magnet's picture

You gotta be a goddamn fool to buy anything at these brick & mortar shops when reputable online shops (NOT AMZN) offer better/competitive pricing, ships for free AND not charge you taxes as long as you're out-of-state.

Thu, 01/16/2014 - 11:12 | 4337712 RKDS
RKDS's picture

Yeah, no, I don't see it.  In fact shipping charges are positively monstrous more often than not.  Always though UPS or FedEx too, where shipping a DVD next door costs $17, because herp derp the USPS is socialist.  Really, the advantage of shopping online is availability.  I tried so hard to fight the e-commerce trend.  I liked going to stores and seeing products in person.  But when every store is stocked like a Soviet supermarket, what's the point?

This wasn't even Obama's fault as many would like to believe.  For me, it started in the late 1990s and picked up steam in the early 2000s.  Now all I really buy at a store is food (obvious) and clothes (because posted sizes are random at best).

You ever try to buy anything but the cheapest commodity electronics at a B&M store?  If you need a mouse or a tablet, BestBuy's alright.  Last time I was in a BestBuy, I needed a radio and they didn't carry them.  Forget about something like Wacom pad or brands beyond the 3 carried by Walmart.  Back when we had alternatives, like CircuitCity and CompUSA, I never left an electronics store empty-handed.  If HHGregg weren't such a joke, BestBuy would've gone under years ago.  You can't even buy DVDs there anymore on account of the selection being comparable to a single bargain bin at Walmart.  Nobody knows anything about what they're selling so you can't even be upsold on a TV or something if you know anything at all about them already.

Another market that's spiraling to oblivion is the toy market.  When I was growing up, there were half a dozen chains, all of them stuffed with toys.  It was impossible to go home empty-handed.  My favorite was KayBee, back before Bain turned them into a dollar store with premium prices.  When they finally went under in 2008, it was like putting a pet to sleep.  You miss your friend but at least they're not suffering anymore.  So now we're stuck with ToysRUs, another company that Bain's squeezing the life out of.  Barren shelves, a high junk ratio, premium prices, etc.  I've been trying to get a toy store up and running with very little capital and it's sad to see them always thinking as small as I have to.  Someday in the future I'll probably be telling grandchildren about toy stores like mine talked about trolleys and ice cream trucks.

Thu, 01/16/2014 - 11:23 | 4337802 adr
adr's picture

It makes me sad. I have such great memories of toy stores, independent drug stores with soda fountains, hobby stores, music stores, and other things that were amazing to a young child. All my son can have memories of is ToysRus, Target, and Walgreens. We can't even go sledding on the big hill in town because some girl broke her leg.

What's sad is I'm not a 65 year old guy talking about the 1950s, I'm 35.

Thu, 01/16/2014 - 12:49 | 4338081 SquirrelButtDan
SquirrelButtDan's picture

Wow, did not know we are about the same age! I always took you for about 60+ years from your posts. I find myself turning into one those "old people" with my thoughts on the younger generations. At least I am not yelling at kids to "Get off me lawn!", yet. 

Thu, 01/16/2014 - 10:21 | 4337568 Troll Magnet
Troll Magnet's picture

You gotta be a goddamn fool to buy anything at these brick & mortar shops when reputable online shops (NOT AMZN) offer better/competitive pricing, ships for free AND not charge you taxes as long as you're out-of-state.

Thu, 01/16/2014 - 11:31 | 4337827 Dingleberry
Dingleberry's picture

That's the BMW model:

lease a new small beemer every three years. There are tons of them around me drivin by the hipsters and posers.

Thu, 01/16/2014 - 10:33 | 4337614 ElvisDog
ElvisDog's picture

I'm going to defend Best Buy (a little). There are some things like headphones that you need to try out before buying, because they all sound and feel a little different. Best Buy is useful for things like that.

Thu, 01/16/2014 - 11:01 | 4337729 TruthInSunshine
TruthInSunshine's picture

Yep.

For those products, you try them out at Best Buy, and after finding out which one is the most satisfactory, order it online for 10% to 40% less.

Thu, 01/16/2014 - 11:21 | 4337795 Greenskeeper_Carl
Greenskeeper_Carl's picture

Yep, and it's pretty hard for that business model to work in an environment where real incomes have been dropping steadily over the past decade, and most people are already burdened with debt to the point they are unwilling to take more just to upgrade their flat screen TV. Bullish for UPS though. That little fiasco around the holidays just proved even more than online retail is the way of the future, so many people avoided the actual stores and had items shipped that the biggest freight company couldnt keep up. Easy to see wherr the declining retail sales went. People can do all their shopping without having to drive anywhere and deal with the crowds, rude sales people etc. these brick and mortar stores will continue to decline. Best buy will be circuit city eventually

Thu, 01/16/2014 - 11:42 | 4337866 John Law Lives
John Law Lives's picture

"Is Windows 8 really better than Windows 7, Vista, or even XP?"

I'm still using XP to this day.  The "window" for supporting XP is drawing to a close, though.

Thu, 01/16/2014 - 09:58 | 4337491 new game
new game's picture

i am near the peak. i see a corpse, ah it is best buy! many oxygen cylinders! is that amazon or is that twitter using the last of the oxygen or is it a the last gasp. plant the flag and desend quickly...

netflix has a flag, many others(too)with shredded masts.

facebook eagerly asending towards the peak of everst too.

in fact the asent is dotted with climbers! woow, soo many going to the summit all at once!

oh, look one lost its hold on the face; falling to krags of jagged death below!

I see a storm brewing with -70 wind chills, oh such a way to die...

Thu, 01/16/2014 - 11:39 | 4337841 TeMpTeK
TeMpTeK's picture

.

Thu, 01/16/2014 - 12:38 | 4338046 UpAndComing
UpAndComing's picture

Bravo, sir

Thu, 01/16/2014 - 09:29 | 4337406 Sudden Debt
Sudden Debt's picture

EVERY SINGLE EUROPEAN JUST GOT 900 EURO'S RICHER!!!!

dutch aritcle

http://www.tijd.be/nieuws/politiek_economie_europa/Belg_900_euro_rijker....

(sorry for the non translation but google is down over here)

EUROPE IS CHANGING IT'S WAY TO CALCULATE GDP AND THAT NOT ONLY MAKES EVERYBODY RICHER BUT ALSO NATIONAL DEBTS WILL DECLINE!!!!

 

I can't figure out how I actually got richer... BUT THEY SAID SO, SO IT'S TRUE!!!

at least I can pay more taxes now...

Thu, 01/16/2014 - 09:33 | 4337419 Sudden Debt
Sudden Debt's picture

CHINA SOLVED THE SMOG PROBLEM MOMENTS AGO!!!

http://www.hln.be/hln/nl/960/Buitenland/article/detail/1775311/2014/01/1...

they put up a video of the sun for the people....

OBAMA SHOULD PAY CLOSER ATTENTION TO OTHER COUNTRIES ON HOW TO SOLVE PROBLEMS!!!

THINK TANK BITCHEZ!!

Thu, 01/16/2014 - 09:45 | 4337451 dobermangang
dobermangang's picture

They should sell guns and ammo and open up a shooting range in every store.

Thu, 01/16/2014 - 10:00 | 4337501 ejmoosa
ejmoosa's picture

A set dedicated to GNN(Government News Network) in every room, with built in audio and cameras....

 

It's for our own good.

Thu, 01/16/2014 - 09:30 | 4337409 max2205
max2205's picture

This pos....They pumped this to incredible heights....and dumped it...look for all time lows

 

Fuck you best buy....you worthless has been

Thu, 01/16/2014 - 09:44 | 4337446 Bobbyrib
Bobbyrib's picture

Do not participate in this used cars salesmen's market. The MSM is constantly selling lies to the public.

Thu, 01/16/2014 - 09:18 | 4337366 JPM Hater001
JPM Hater001's picture

You mean there were...

Layoffs in 5, 4, 3, 2...

Thu, 01/16/2014 - 09:20 | 4337374 Oracle of Kypseli
Oracle of Kypseli's picture

Who is going to by all the Tesla's?

 

Thu, 01/16/2014 - 09:22 | 4337381 Sudden Debt
Sudden Debt's picture

and all those government bonds?

Thu, 01/16/2014 - 10:15 | 4337546 new game
new game's picture

and all that everything with declining incomes and maxed out lines of credit?

lord have mercy on the shopaholics!

grant them one final hope-spendersanon...

Thu, 01/16/2014 - 10:17 | 4337551 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Who will buy the Teslas? Gubmint
Who will buy the Gubmint bonds? Gubmint

Thu, 01/16/2014 - 09:39 | 4337435 madbraz
madbraz's picture

This turd was $9 less than 2 years ago and has gone up like a rocket while sales go nowhere.  It should fall 90%, not 30%.

Thu, 01/16/2014 - 09:17 | 4337362 papaswamp
papaswamp's picture

JCP closing some 30 stores by May, suspect Sears will follow....and now Best Buy will probably do the same. Who is next?

Thu, 01/16/2014 - 09:19 | 4337370 JPM Hater001
JPM Hater001's picture

Goldblatts?

Thu, 01/16/2014 - 09:21 | 4337377 wisehiney
wisehiney's picture

Radioshack, kmart, barnes and noble, teen retailers.....

Thu, 01/16/2014 - 09:24 | 4337389 Sudden Debt
Sudden Debt's picture

AND BEFORE YOU KNOW IT THERE ISN'T A STORE AT EVERY SINGLE CORNER OF EVERY SINGLE STREET AND PEOPLE WILL NEED TO DRIVE 5 MINUTES TO GET TO A STORE!!!

so...

GO LONG OIL!!

Thu, 01/16/2014 - 09:31 | 4337414 GetZeeGold
GetZeeGold's picture

 

 

Some good legislation would fix that problem right up.

Thu, 01/16/2014 - 09:40 | 4337436 Sudden Debt
Sudden Debt's picture

like a minimum spending quota at Best Buy from your salary or benefits for example...

and at McDonals, iStore, Hooters... ECONOMIC GROWTH YOU CAN BELIEVE IN!!!

 

Thu, 01/16/2014 - 09:42 | 4337441 GetZeeGold
GetZeeGold's picture

 

 

You can take Hooters off the list.....unless we run into a shortage of boobs. The boob panels would never let that happen.

Thu, 01/16/2014 - 10:14 | 4337544 SilverIsKing
SilverIsKing's picture

Short commercial real estate.

Thu, 01/16/2014 - 09:29 | 4337408 augustusgloop
augustusgloop's picture

Will be great for commercial real estate & mall REITS

Thu, 01/16/2014 - 10:11 | 4337532 Global Hunter
Global Hunter's picture

Sears Canada laid off 1540 workers yesterday, 500+ in the small city of 50,000 near me.  No store closings I am aware of, layoffs in the call and distribution centres. 

http://www.intelligencer.ca/2014/01/15/layoffs-at-sears

Thu, 01/16/2014 - 09:17 | 4337363 TeamDepends
TeamDepends's picture

But we are confident that this coming holiday season will be the strongest yet....

Thu, 01/16/2014 - 09:31 | 4337413 max2205
max2205's picture

Long bowling alleys as a replacement business....the dude abides

Thu, 01/16/2014 - 09:40 | 4337417 GetZeeGold
GetZeeGold's picture

 

 

Careful man........the dude is holding a beverage here.

Thu, 01/16/2014 - 11:09 | 4337759 TeamDepends
TeamDepends's picture

The scene where the nazis toss the weasel into the dude's tub is an all-time classic.

Thu, 01/16/2014 - 12:05 | 4337947 Warhead
Warhead's picture

No, TD, those men were nihilists. Nothing to be afraid of.

Thu, 01/16/2014 - 14:27 | 4338413 The_Dude
The_Dude's picture

It's just a game, man.

Thu, 01/16/2014 - 09:18 | 4337367 tarsubil
tarsubil's picture

What if the Fed, instead of giving money to the big banks, cut out all the middle men and simply bought electronics directly from Best Buy?

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