The consumer electronics company Best Buy came in with earnings twenty fold higher than for the same period a year ago. The survival of Best Buy was in question a year ago but cost cutting measures and a successful approach to online sales has allowed the company to triple its stock price from just seven months ago. After financials were announced the stock beat expectations and gapped up another four dollars a share. The company credits three changes for their renewed success. Best Buy has dedicated areas of its stores to the likes of Apple and Samsung. It has chosen to match prices when competitors have sales. And, Best Buy has invested heavily in training and retraining its employees. Online sales have gone up over ten percent in the last year as well. Price matching applies to its online sales as well as purchases in store. The main competitor for the price matching strategy has been Amazon. Although same store sales fell slightly it was an improvement over greater reductions in sales in previous years. Cost reductions easily made up the difference.
Where Best Buy Has Come From
Fundamental analysis of Best Buy a year ago told most investors to sell. They did this and took the stock from $20 a share to $12. The recession and other factors caught up with Best Buy – BBY. Costs were and profits were down. Amazon.com, the killer of bricks and mortar retailers, was taking away business. Market sentiment was such that folks assumed the worst and took the price down. There was speculation that Best Buy would follow Circuit City into oblivion. This company has been selling consumer electronics for a quarter of a century. It is the result of a name change of a music store, Sound of Music. Best Buy now sells nearly a fifth of the consumer electronics sold in the USA and has branches in Canada, Mexico, Puerto Rico, and China. It had gross revenues of around $16 Billion a year but had seen its profit slip from the $700 million range to the $600 million range. Then Best Buy started to close stores. Luckily the company had little debt giving it a margin of safety. It did not have to downsize to relieve itself of a debt burden. It simply closed its least profitable stores. Because the founder still owned twenty percent of the company it was unlikely that a hostile takeover would succeed. As Best Buy recovers this prospect diminishes with each increase in stock price.
Is Best Buy a Good Buy Today?
As Best Buy recovers it is no longer an issue of investing in buyout prospects . The days of Best Buy opening more and more stores and filling them with customers is probably gone. But it appears as though the price matching policy for online sales and the fact that they successfully advertised that policy have helped keep Amazon.com at bay for the time being. Best Buy has an advantage that a totally online sales competitor does not have. It has stores where you can take your recently purchased merchandise for questions. Geek Squad tech support at Best Buy is a winner and tends to bring satisfied customers back for more. In the end a well trained staff and competitive pricing will probably help the company. Sound investment advice is probably to keep watching this company for increased profits and a higher stock price as Best Buy recovers.