Best Buy, Now? It’s Just Crazy Enough to Work

By Tim Brugger - May 14, 2012 | Tickers: AMZN, BBY, TGT, WMT | 0 Comments

• Email
• Print

Already mired in the middle of what’s been a difficult time for the once high-flying electronics retailer, Best Buy’s (NYSE: BBY) recent scandal(s) have many analysts and investors concerned with the company’s focus. How are they supposed to manage the company in the soap opera like atmosphere? Not to mention rebound from what has dragged the likes of both Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) down – consumers spending little of their new-found cash on electronics.

Both Wal-Mart and Target have lamented the lack of sales in their electronic lines – even while posting strong same store sales figures for several months running. If industry leaders like those guys are seeing an impact, it’s not hard to imagine Best Buy really taking it on the chin. And the traditional retailers are far from Best Buy’s only competitors. Amazon’s (NASDAQ: AMZN) online electronic sales are huge and directly impact one of Best Buy’s primary business objectives – building their online revenues as they continue interim CEO Mike Mikan’s and the Board’s turnaround initiatives.

All News Isn’t Bad News

At first glance fiscal Q4 results were not pretty – operating income of $69 million vs. $1.37 billion in the year-ago quarter will put a scare in the most courageous investor. But take out the one-time $1.24 billion expense and $1.3 billion minority interest line item – in large part due to management’s decision to buy out the Best Buy Mobile profit share deal with Best Buy Europe - and suddenly both top and bottomline numbers look pretty solid vs. last year. Revenues were also up – though it must be said the figures benefited from an extra week in fiscal Q4 and the year. However, even with that the results weren’t quite the gloom and doom they initially appeared to be.

As for Amazon, a shift in the e-commerce tax landscape should be interesting to watch. Not having to collect sales tax from shoppers in states like Texas and California have made a significant, positive impact on Amazon's revenues and left traditional retailers like Best Buy screaming “foul!” As the online tax climate changes – more and more states are shutting down the e-commerce tax loophole – Best Buy is poised to benefit.

There’s also the $800 million expense savings initiatve by 2015 the company’s has initiated. This should begin to pay dividends – to the tune of $250 million – by next year. The closing of 50 stores – primarily in China, Turkey and the U.K., coupled with a focus on lower cost Best Buy Mobile services and online sales – will also help going forward.

There are a couple of interesting tidbits for the fundamental investor too. Once you take out the one-time items, Best Buy is extremely cheap for a company that has continued to generate profits in spite of tough economic and consumer spending conditions. This is especially impressive considering much of what Best Buy sells aren’t considered necessities by consumers – more like niceties. As consumer spending and confidence continues to ratchet up, Best Buy will be in the right place at the right time – leaner, meaner and with an improved product mix.

For a little icing on the Best Buy cake consider this – the company is trading near its 52-week low even with a slight bump to start the week, they pay a solid 3.27% dividend and by all accounts have the right people in place to move beyond the current soap opera like environment. Got a little time? Best Buy will prove well worth the wait.

• Email
• Print
• Feedback