Best Buy Still Doesn't Get It

Best BuyIt's been three months since I argued that Best Buy (BBY) will never be great again.

So far, so gloom: The consumer electronics retailer's latest quarter was another disaster.

Revenue rose by less than 2% to $12.1 billion. Earnings, adjusted for a one-time restructuring charge, fell to $0.47 a share, well below both the $0.54 a share that it posted a year earlier and the $0.51 a share in net income that analysts were targeting.

Best Buy can point to a 0.3% gain in store-level comps, but let's not go assuming that its stores are full again. The 20% growth in BestBuy.com Internet sales is pro-rated among its physical stores in calculating same-store sales. It's a deceptive tactic, albeit one that many retailers use.

Either way, what good is a 0.3% gain in comps after a 3.3% decline during last year's fiscal third quarter? All this means is that Best Buy is still not selling as much at the store level as it was two years ago, when there was an actual recession taking place.

Brother, Can You Spare an HDTV?

Best Buy credits gains in tablets, appliances, e-book readers, mobile phones, and movies for its slightly positive performance. Weakness in digital imaging and video games held the retailer back.

However, the really problematic part of this report is that margins continue to slide. You don't like to see revenue growing faster than earnings -- or, in this case, Best Buy's top line not sinking as deeply as its bottom line. When less of every dollar a company generates in revenue squeezes its way down to the earnings line, it means that a retailer is either marking down its merchandise or consumers are gravitating toward products that historically carry lower profit margins.

Best Buy was hoping that international expansion would help offset its mature stateside presence, but same-store sales actually fell overseas during the quarter.

This isn't a very encouraging situation, and it's easy to see why Best Buy shares fell sharply after the company announced its results on Tuesday morning.

Future Shock

It's hard to get excited about the company's near-term prospects. The midpoints of its guidance for revenue and adjusted operating profit call for declines this fiscal year. Gross margins will also fall.

Best Buy's worst fears are coming to fruition. The same shoppers whom it has armed over the years with smartphones, tablets, and laptops are now using those devices to find better prices online. Even when folks do walk into a store, they can seamlessly compare prices on their smartphone to make sure that they're getting the lowest price.

More often than not, the better deal can be found elsewhere.

Investors encouraged by Best Buy's reasonably healthy 20% growth in online sales may want to consider that larger e-tailer Amazon.com (AMZN) is growing twice as fast.

Best Buy's future isn't going to get any easier than its recent past.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com and Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon.com and writing covered calls in Best Buy.

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31 Comments

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Greg

well of course they don't get it... most anything you find in their stores are overpriced with their retail competitors offering the same products at more then 45 percent cheaper and now in this day and age with the economy the way it is Best Buy should be looking at slashing prices on some of their products if they hope to compete with Walmart, Target, and other electronics retailers even buying something simple as a boxed computer program will cost up to $50 to $90 where the same if not next to comparable product can be had for $29 to $40

December 20 2011 at 5:12 PM Report abuse rate up rate down Reply
dgoerger

I think if Best Buy would quit treating us senior citizens like we don't know anything and quit egnoring us and allow us to spend our money, they might get a little further along. I only go there when I absolutly have to and than I swear I will never go back only to find myself in a pridicument where I have to go back.. Thank goodness for internet buying, it cuts my trips there by quite a bit.

December 20 2011 at 1:39 PM Report abuse rate up rate down Reply
Oscar

I quit buying at Best Buy when they started the current advertising knocking Santa Claus. Kids are very disappointed when Santa gets kicked off a roof by a Best Buy Associate.

December 19 2011 at 7:06 PM Report abuse rate up rate down Reply
KENSUTHERLAND

Two ways to stop this bad service. Go on line to Crutchfield .com. the number 1
service on electronics in America , give them a call and find out for yourself . Or go
to Amazon.Com great service , friendly , competitive. Save your gas and your cash.
Free Parking.

December 19 2011 at 6:05 PM Report abuse rate up rate down Reply
coinman507

Ever use there Geek Squad ? I paid $250.00 to have them come in and set it up and get it running. They came in a couple of days after I bought the computer and set it up so I thiught. When I went to use it,it wouldnt work.It took them two weeks to come back and set it up because they couldnt get hold of the geek that set it up.No they wouldnt send a different geek to do it either.The guy that worked on it originally was the only one they wanted to work on in. I was hung out to dry so to speak.Just dont say you werent warned!! CM.

December 19 2011 at 4:35 PM Report abuse +1 rate up rate down Reply
icatchem4

No wonder..I wont shop there, ever..You ask why? Well, I purchased a 9.99 item that didn't work, and went to refund it, and was brow beat about why the package was open, etc. Shopping there is like a milatary state, from the gustapo SS people who check every receipt as you walk out, to the little video screens they watch, letting you know "BIG BROTHER" is always watching. Their refund-return policy is the worst in the industry. (The 9.99 deal was 3 years ago) now, I refuse to shop their because of it. They lost a loyal customer over 10 bucks. Why can't is just be as easy as Kohls to return things?? Sooner or later they will get the picture. Anyone else ever try to return something, and get the, "SS Gustapo, Show Me Your Papers Routine"? Just my 2 cents.

December 19 2011 at 11:33 AM Report abuse +1 rate up rate down Reply
tsimpson2333

My complaint with Best Buy is you generally must go to the store to get something done--like an exchange of a recent purchase of a T.V. Bougfht one Friday and sunday found it to be defective, had to go to the store and get the exchange even though it was a large screen T.V. and very difficult to bring back.

December 18 2011 at 12:19 PM Report abuse +1 rate up rate down Reply
1 reply to tsimpson2333's comment
docmetcalf1955

really? what did you think was going to happen? little elves appear and magically fix it?

December 19 2011 at 7:31 AM Report abuse rate up rate down Reply
FedUpWithBigGovernme

Ohhh and I forgot their tactic of INSTALLING their crap bloatware on the computer... and then have the audacity to attempt to charge you something like 59.95 for... I would never accept an opened box item that they installed on the computer... because... I AM SURE they are selling returns as new.. and the fact they OPEN EVERY BOX makes it hard to determine if something has been opened... Because of this practice alone.. I will NEVER even think about purchasing a laptop / desktop at a Best Buy anymore.

December 17 2011 at 6:55 PM Report abuse +1 rate up rate down Reply
FedUpWithBigGovernme

Why should one be loyal to the retailer when that retailer is always trying to stick it to you. Best Buy is guilty of sometimes packaging 'used' items and trying to pass them off as new. I and a friend of mine have caught them quite a number of times where it was evident a package had been opened.. and they were selling the item as new. Have you been to one of their stores lately? 1/2 of the floorspace seems to be empty!!!! They have less merchandise. As Sam Walton used to say .. (which the new leaders at Wal Mart found out the hard way)... STACK IT HIGH AND WATCH IT FLY. Also you have to take into account that the TV upgrade cycle to HD is about over... Also... since Circuit City went out of business... there just aren't as many deals at BB.... they figured consumers had no other choice... how wrong they were... Unfortunately we are stuck with BB or HHGregg... (whose commissioned sales people are like vultures) .. and neither of which are pleasant shopping experiences...

December 17 2011 at 6:52 PM Report abuse +1 rate up rate down Reply
Winebojo

Like many businesses today there is no loyalty between supplier and seller. If I am the supplier I don't expect to be competing with my competition at the same retailer. There once was a time when the retailer supplied and sold ONE product line. Best Buy sells them all. As a Supplier I have no special deals for a retailer that wants it all without giving anything. In short we should be partners.
As an employee I expect to be expertly trained and paid accordingly by my employer. As an employer the responsibility is to treat your employee as you would treat your own family.
Today there is no manufacturer, only middle men pretending to be a manufacturer. There is and has been way to many mergers and acquisitions, Hence Wall Street bundling of companies. I see no solutions, big box stores have taken over.

December 17 2011 at 12:32 PM Report abuse +1 rate up rate down Reply