Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Did the Holidays Help Best Buy?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Maybe your college had a horrible football team -- mine didn't even have one -- so any win was a cause for celebration. Out came the old couches onto the lawn, and you doused that beautiful off-green upholstery in kerosene and warmed yourself up while you waited to be arrested. The point is that you had a reason to celebrate even when things weren't going "well" in the traditional sense. That's what's going on at Best Buy (NYSE: BBY  ) , where investors this week dragged the futons out the front door and grabbed the marshmallows.

Holiday sales were down, but not as much as they could have been. Hurrah! In fact, they fell slower than the rest of the retail sector, according to most reports. The big box dropped 1.4% year over year, while retailers in general fell about 3%. The stock jumped more than 10% on the good news, but investors may wake up tomorrow in that cold, couchless house wondering if it was all worth it.

So was it?

The skinny on the sales
Let's not kid ourselves: A 1.4% fall isn't great. While (NASDAQ: AMZN  ) didn't release official numbers, analysts estimate that it saw close to 30% growth over the holidays. And we know that Target (NYSE: TGT  ) , which had a weak holiday season, managed to break even on its comparable sales in December.

Best Buy's fall may have beaten the average, but it's not making up any ground against the leaders of the pack. Apart from the sales figures, Best Buy is also staring down an unfavorable product mix, causing more concern for the company.

Holiday sales moved away from the big-ticket items that used to be Best Buy's bread and butter. Instead, customers came in for cell phones and tablets, a trend that's having a negative effect on Best Buy's free cash flow, as the company dropped its forecast for free cash flow for the year from at least $850 million down to $500 million. Some analysts have seen that fall as evidence that the company worked hard to get market share back, giving it some stability as we move in to 2013. But the bigger question is how the new sales figures are going to affect a potential buyout from Richard Schulze.

Best Buy-out
Best Buy's founder has been lurking for a while now, and in early December it looked as if things were finally going to come to a head -- but Schulze didn't make a move. The new sales result could help or hurt Schulze's position, depending on how it's interpreted. On one hand, he may be able to attract more backers, since the company beat expectations and may have found some solid ground, thus helping to convince private investors that Best Buy still has a future. Even better than the headline number is that in the U.S., sales were flat. If the company goes private, it may seem like an easy solution to simply sell off the international segment.

On the other hand, cash is king. Schulze is going to have to either make his pitch stand on the one-time nature of the cash fall, or explain how cost savings and reorganization can increase the flow. If he thinks he can sell a turnaround, he's going to have to explain how Best Buy is going to avoid the squeeze that Amazon, Target, and Wal-Mart (NYSE: WMT  ) have already put on it. Considering that Target just introduced a price match with its major competitors, agreeing to meet both online and in-store prices, it may be a hard sell.

The bottom line for investors
No one watching this unfold could think that investing in Best Buy is risk-free. Right now, the price is swinging on the likelihood of a buyout, which is what investors should be hoping for. Going back to the football analogy, the real reason to get excited is not that you might win the conference -- that ship sailed long ago. Instead, you set the couch on fire, because with this win, the team shows that it might at least not lose to the college down the road. Small victories are still victories.

I think this all bodes well for Best Buy's buyout potential. While the cash situation is not to be overlooked, I think the domestic strength is a big bargaining chip and should make a buyout easier to sell. If that does happen, investors really only win if the price is near $25. Anything below that would be a small gain on any buy-in price over the past year, with the last quarter of 2012 being the exception. The problem is, $25 is a long, long way off. If you were to buy in today, you could still turn a tidy profit on a $20 buyout -- but that's no sure bet, either.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2490764, ~/Articles/ArticleHandler.aspx, 9/26/2016 10:25:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,132.90 -128.55 -0.70%
S&P 500 2,155.59 -9.10 -0.42%
NASD 5,269.58 -36.17 -0.68%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 10:09 AM
BBY $37.70 Down -0.29 -0.76%
Best Buy CAPS Rating: *
AMZN $801.37 Down -4.38 -0.54% CAPS Rating: ****
TGT $67.78 Down -0.99 -1.44%
Target CAPS Rating: ***
WMT $72.02 Down -0.33 -0.46%
Wal-Mart Stores CAPS Rating: ***