Persistent weakness in the consumer electronics segment remains a concern for Best Buy Inc. (BBY) as revenues and comps continue to dwindle. Second-quarter fiscal 2015 revenues of $8,896 million fell 4% and missed the Zacks Consensus Estimate, while comps dropped 2.7%. Moreover, absence of major product launches, weakness in the mobile category and stiff competition from online retailers like Amazon Inc. (AMZN) are factors affecting Best Buy’s performance.
To combat its dismal financial run, Best Buy had reinforced a turnaround strategy called the Renew Blue transformation program to rein in escalating costs and increase online traffic as well as store conversion rate. Though industry trends do not look encouraging, we believe this strategy will help the retailer to bail it out. This was well reflected from the company’s second-quarter earnings of 44 cents that topped the Zacks Consensus Estimate while rising 37.5% year over year.
Moreover, under the program, the company has already achieved $900 million in annualized savings against the targeted $1 billion. In the quarter, the company achieved $40 million in cost reductions. Also, domestic comparable online sales increased over 22% in the quarter driven by the company’s “buy online – ship from store” and digital marketing capabilities.
Moving ahead, Best Buy remains focused to drive online traffic through a series of new initiatives, which include extension of its online fulfillment centers, proper inventory allocation, integrated viewing option across its online platforms, a new search platform, increasing assortment and reduced shipping costs.
Best Buy is also trying to take advantage of store-in-a-store concept. After building vendor partnerships with Microsoft Corp. (MSFT) last fiscal, Best Buy announced new vendor partnerships with Samsung and Sony Corp. (SNE). In the quarter, the company launched 800 new Samsung and Sony home theater stores-within-a-store. Things are expected to improve as new Ultra HD TVs are likely to draw huge traffic to the stores.
Currently, Best Buy is a Zacks Rank # 3 (Hold) stock.
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