Best Buy Must Do More Than Survive

 | Jan 21, 2014 | 9:30 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




Wall Street analysts loved Best Buy (BBY) into the holiday numbers. Following a 36% kaboom in the stock price last week after less-than-stellar holiday same-store sales and look-away, train-wreck margins, should you love it now?

Here is the dilemma. Best Buy is not going away, as it is basically the only pure play game in town, excluding hhgregg (HGG) (which has plans to go national). Failing to disappear in 2013 was simply enough to catapult the stock up more than 200%.  But 2014 is going to have to deliver much more than just survival for BBY to return significant gains, even at last week's selloff levels. 

Here is why I would not get involved just yet:

  1. CEO Hubert Joly seemed to be separating himself from reality on the last-minute holiday sales conference call. Case in point, calling tragic margins/disappointing sales as a "speed bump." I described it as less speed bump, more road kill last week on CNBC. Why in the world would we believe the promotional environment is going to change anytime soon, never mind next year's holiday season?
  2. Best Buy prepared us for table stakes in Q4. We knew the company was going to defend market share at the expense of margins. But bottom-basement promos did not drive sales in line with expectations. That says a lot about just how bad the category is getting battered.
  3. We are reminded of the race-to-the-bottom promotions, which resulted in the ongoing race-to-the-bottom margins. While BBY management believes we should not read into this quarter, I believe guidance for 2014 will suggest otherwise. Watch out for the earnings estimates chopping block, not to mention downgrades.
  4. The bright spot appliance category, which was up 17% this quarter, is still too small to make a meaningful difference for BBY. Plus, have we seen the best of the home upgrade buying spree as interest rates start to rise?

Best Buy was the darling of 2013, but most likely for short-term reasons. We have to give credit where credit is due to a new management that reversed terrible execution issues from previous managers. But a cost-cutting story is not going to cut it in 2014.

Sales and margins have to be the next leg of the story and that seems unlikely near term. If you want a best buy, wait for bargain-basement guidance.

Columnist Conversations

The symmetry is holding up in MCD.  Target 1 is 163.34 if we continue to hold above here!  ...
As far as TSLA is concerned, I still have a higher target above the market at the 409 area.  I stated in ...
The TLT setup discussed in my last commentary is a bust. Key support was violated and it violated the recent l...
BBY is getting smoked this mornings(weak forecast).  The stock is off 8% after opening the session with a...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.