Commentary

Best Buy Reports A Cheery 3Q; Sees Heavy Promotional Spending Ahead

The news out of Big Box Land apparently need not be one of unremitting lowered growth and curtailed expectations as Best Buy this morning provides the latest object lesson in how to respond to the invasive forces of e-commerce and smaller footprints. Not only did its third-quarter results “shatter expectations,” as the hed in the hometown Minneapolis Star Tribune puts it, its executives are downright cautiously optimistic about the holiday shopping season.

“The nagging question about Best Buy Co. Inc. has been whether it was slowly fading — driving profits by cutting costs but not able to build sales,” writes Kavita Kumar. “On Thursday, the Richfield-based electronics retailer showed it can do both. It reported its first sales lift in nearly two years and a near doubling of profit, shattering analysts’ expectations.”

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Make no mistake that a large part of its continuing success has to do with getting with the program: an improved online experience, stores within stores for brands such as Samsung, and faster fulfillment of e-commerce orders. 

Then, of course, there’s the stuff that really excites CFO types: “Since 2012, Best Buy has removed layers of management, cut jobs, shut stores and boosted cash reserves under its Renew Blue initiative,” as Reuters’ Nandita Bose and Ramkumar Iyer report.

But “the most surprising and encouraging thing to come out of Best Buy's earnings beat on Thursday is the growth in revenues, Anthony Chukumba, BB&T Capital Markets senior research analyst, told CNBC,” writes Tom DiChristopher.

“One of the things that the bears have said is, ‘Okay, they're cutting costs but they can't grow their top line.’ Well guess what? They grew their top line,” Chukumba said on “Squawk Box.”

Revenue for the quarter was $9.38 billion, against $9.36 billion a year ago.

“Best Buy's results are particularly poignant for a company that has fallen victim in recent years to the so-called ‘showroom effect,’ in which customers visit stores to check out products in person, and then go home and buy online somewhere else like Amazon,” observes Jesse Solomon on CNN Money while pointing out that shares of Best Buy jumped 8% in morning trading yesterday [it closed up 6.98%] while Amazon is down 20% this year as profit proves elusive.

“Like other major retailers, Best Buy is trying to ship more items from its stores, rather than just a handful of warehouses around the country, in an effort to get packages to shoppers quickly,” writes Rachel Abrams in the New York Times. It has not only expanded its ship-from-store option from 400 stores last year to 1,400, Abrams points out, “another online service, in-store pickup, has improved as well. It helps drive foot traffic, something all retailers have been struggling with as more customers choose to shop online.”

In the Wall Street Journal, Drew Fitzgerald and Michael Calia draw a bigger picture of the shopping landscape with a little encouragement from Best Buy CEO Hubert Joly, pointing out that Best Buy’s surprise results “[suggest] that constraints on consumer spending may be easing slightly.”

“We’ve had a more favorable environment and then, candidly, we’ve gained share,” Joly tells them. “This is encouraging for the country as a whole.”

Joly said Best Buy will be looking to improve customer service and increasing online sales, Andrea Chang reports in Market Watch. “It also has added an outlet section on its website to clear returned and refurbished stock, an area Joly has said has been another missed sales opportunity.”

For all the good cheer, the company sees a flat quarter ahead due to competitive pressure on pricing during the holiday season. 

“The promotional environment is very intense,” Joly said during a conference call discussing the 3Q results yesterday transcribed by Seeking Alpha. “It is certainly not less intensive, and if anything it’s probably a little bit more intense than last year.”

“Recognizing how delicate Best Buy’s newfound momentum is, Joly, who took the reins in 2012 … said Best Buy needs to win in areas like ultra high definition TVs, connected home devices, wearables, and more away from areas where consumer electronics are essentially commodities,” reports Phil Wahba in Fortune. “He also wants Best Buy to do a better job personalizing ads.”

Marketing Daily’s Sarah Mahoney has the low-low-lowdown on some of the early Black Friday drumbeating this week (although fewer shoppers are expected to hit the malls), signaling out Best Buy for its “Beat the Black Friday Rush” promotion on its home page. “6 Deals. 3 Days. Available Now,” is the succinct offer on the landing page for bargains such as $80 off an iPad Air and a 60-inch Sony TV for $649. 

And free shipping or delivery to boot. Take that, Amazon Prime!

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