Shares of Best Buy Co., Inc. (BBY) tumbled 14% yesterday after the retailer alarmed investors by adopting a cautious stance for fiscal 2016 despite a good holiday sales report.
Best Buy stated that its holiday sales were driven by excitement surrounding the launch of new products, such as Apple Inc.’s (AAPL) iPhone 6, hence it is unlikely that the momentum will sustain for long. Moreover, ongoing incremental investments and challenges presented by the sector might spell trouble for the retailer. As a result, the company expects comps for fiscal 2016 to range from flat to negative low-single digits and adjusted operating margins to be hurt by 30-50 basis points (bps) during the year.
Coming to the holiday period, this Zacks Rank #3 (Hold) stock’s sales for the nine weeks ended Jan 3, 2015, inched up 2.1% to $11.4 million, with comps registering 2.5% growth. Mobiles and large screen TVs emerged as the best performing categories. Sales exclude results of the Five Star Business in China that the company announced that it would divest last year.
Region wise, domestic sales grew 4.1% to $10.1 million driven by a 2.6% increase in comps (excluding a 80-bp benefit from installment billing). Online comparable sales were 13.4%, a sharp drop from 23.5% growth registered last year. Weaker sale of tablets was one of the main reasons for the drop.
Good domestic performance was extensively offset by an 11.7% drop in International sales to $1.2 million. A stronger U.S. dollar and weak performance in Canada hampered International revenues. International comps too, fell 3.6% against a 0.5% drop in the last holiday season.
Nevertheless, buoyed by domestic sales and comps growth, the company raised its fourth-quarter fiscal 2015 outlook. The company now expects comps for the quarter to be up 1% as against earlier projection of flat comps. Adjusted operating margin will get a 75-90 bp boost against 50 bps projected earlier.
However, the current slump is not as bad as it was last year when shares of Best Buy crashed 29% in a single after the dismal holiday sales data. However, it still raises plenty of questions on to the future of these consumer electronics retailers. With no respite from weakness in the sector and severe competition from online rivals like Amazon.com Inc. (AMZN), these retailers might face tough times ahead as indicated by Best Buy’s cautious outlook.
Moreover, a day earlier, the market was abuzz with rumors that RadioShack Corp. (RSH), another consumer electronics retailer, might file for bankruptcy protection in early February. The company has been struggling to raise enough cash and credit to stay afloat, despite desperate attempts to turn around business over the last 18 months.
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