Commentary

Best Buy Results Show There's Life In Retail Yet

Best Buy yesterday offered up 2Q 2017 results that surprised analysts not only with positive same-store sales growth — up 0.8% in the U.S. — but also demonstrated that “free” two-day free shipping, a streamlined checkout system and price-matching can be an effective competitive play online.

But don’t go calling Best Buy an Amazon Killer. It’s more an Amazon Survivor.

“It wasn't long ago that Amazon was considered to be the death knell for Best Buy's business. That's no longer the case,” is how CNBC’s Krystina Gustafson sets it up. “The bricks-and-mortar electronics chain on Tuesday said its U.S. online sales grew 23.7% during its fiscal second quarter, marking the second straight quarter of nearly 24% growth.”

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Its shares “surged” as a result — 15% to nearly 20% depending on who you read and when they were writing it, even as CFO “Corrie Barry reiterated a forecast for revenue this year flat with last year’s $39.53 billion in revenue,” as Barron’s Tiernan Ray reports. But, in an earnings conference call transcribed by Seeking Alpha, Barry said that it now expects “a full year non-GAAP operating income growth rate in the low-single digits versus our previous expectation of approximately flat.” 

He also “indicated that sales of computers and of4K television sets had gone better than expected, beating very low expectations, and off-setting weakness in smartphones.”

“While shoppers aren’t flocking to its stores for CDs and flat-screen televisions like they once did, the electronics retailer has begun a long-promised turnaround by closing underperforming stores and capturing more business that shifted online,” observes Paul Ziobro for the Wall Street Journal.

“Unlike Macy’s Inc. or Wal-Mart Stores Inc., which are now feeling the pinch of clothing and food sales moving online, Best Buy long ago ceded a large chunk of sales to e-commerce rivals. Its comeback is built on a lift from fewer store-based rivals, higher demand for gadgets like Fitbit trackers and replacement sales of expensive items like refrigerators and washing machines.”

“Plus, it looks like it's finally learning a thing or two from some of its biggest vendors, such as Apple. On Tuesday it outlined a series of pilot programs that sounded awfully Apple-like, including in-store classes on WiFi use and digital photography,” writes Bloomberg “Gadfly” columnist Shelly Banjo.

“Another initiative pulls a page from former Apple store mastermind Ron Johnson's new startup, Enjoy, which sells high-end consumer electronics online but provides free in-home installation and setup services. Best Buy said it's testing a similar in-home adviser program, as well as on-demand, same-day services for customers who need immediate tech help.” 

“While he doesn’t expect virtual reality to make a significant dent in sales this year, [CEO Hubert Joly] noted that many Best Buy stores will be destinations for demos of the newer technology and would likely be a driver of growth further down the road,” writes Kavita Kumar for the Minneapolis Star Tribune.

“‘It’s just mind-boggling,’ he said and recounted a recent memorable experience trying it out himself. ‘I was almost eaten alive by a shark!’”

“But he wasn’t. And neither was Best Buy,” concludes Kumar, whose piece contrasts the Richfield, Minn.-based company’s recent success with those of Minneapolis-based Target Corp.’s “bombshell last week that its electronic sales were down double-digit percentages in the second quarter.”

“We are encouraged by the quality of our execution, the momentum in our business and the strength of our first-half financial results,” Joly says in a statement.

Indeed, Best Buy’s gains came despite the Commerce Dept. reporting sales at electronics and appliance stores fell 3.9% in the second quarter, points out the WSJ’s Ziobro.

“Overall, Americans have been lately shifting more of their spending towards home renovations, furnishings and cars and away from smaller gadgets,” writes Patrick Gillespie for CNNMoney.

“Best Buy is one of the few success stories amid a litany of struggling retailers. Macy's, Target, Sears & Kmart, Staples, Sports Authority and RadioShack have closed hundreds of stores in the past two years. Macy's announced earlier in August it would close 100 locations.”

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