Is the Sun Setting on Best Buy Once More?

Now that it's become painfully obvious that hawking cell phones doesn't make a viable business, Best Buy (NYSE: BBY  ) is casting about for something to help it limp along until it can find the next new wave to ride. That something is apparently solar panels. Seriously. Because you'll be wanting to buy a solar panel the next time you go to the consumer-electronics giant to buy whatever it is people buy when they go to Best Buy these days, which seemingly isn't much.

Source: SolarCity.

Same-store sales at the retailer during the busy Christmas season fell nearly 1% and were down 1.2% for the quarter. Gross profits were down as it had to resort to a heavy promotional campaign to get customers through the door, but it was also affected by a new mobile warranty program it introduced last quarter that drained away 35 basis points from its margins.

Cloudy skies ahead
Just as when the digital TV conversion wave was in full swing before the financial markets imploded, you could pretty much buy a large, flat-screen TV set anywhere you shopped. Solar panels are just as ubiquitous today, showing up everywhere from home centers like Home Depot to car dealerships like Honda and Tesla, and pretty much everywhere in between. But it's exactly that ubiquity that suggests solar panels will do nothing for Best Buy's bottom line and are at best a distraction.

The company behind this proliferation of panel outposts is SolarCity (NASDAQ: SCTY  ) , the leading publicly traded U.S. residential solar installer that is teaming up with as many partners as possible in an effort to make buying a solar system as simple as, well, buying your next LCD TV.

It is offering its services in 60 Best Buy locations across Arizona, California, Hawaii, New York, and Oregon, and will offer every customer who signs up for sign up for solar service through Best Buy before Earth Day a $100 Best Buy gift card. SolarCity fronts the cost of installation and equipment while the customer pays it off over the next 20 years in monthly installments.

The full light of day
According to GTM Research, the residential solar financing market in the U.S. is expected to grow from $1.3 billion in 2012 to $5.7 billion in 2016, and SolarCity has been issuing debt through bond offerings to raise capital to fuel its expansion. Not that there isn't interest in solar energy, as a recent Zogby Analytics survey makes clear that 62% of U.S. homeowners say they want solar power, and more companies are getting into the sort of leasing program SolarCity provides. But I don't see the partnership between Best Buy and SolarCity offering much juice to either company.

With the consumer-electronics retailer finding slowing sales during its busiest season, the kind of foot traffic the solar shop is looking for isn't going to move the needle. And though financial terms were not disclosed, it's hard to see this moving the needle all that much, if at all.

Leasing may be more popular these days because of cutbacks in incentives and subsidies to the industry, but there is an explosion of companies tapping the same market as SolarCity, and despite the heightened level of interest, homeowners are still not embracing solar power as much as hoped. As the PV financing shop points out, despite the availability of tens of millions of rooftops in the U.S., there are still "fewer than 500,000 photovoltaic installations." Indeed, GTM Research says that as of the end of this third quarter of 2013, cumulative installations stood at just 360,000.

Made in the shade
At best, this initiative falls into the category of "how can it hurt?" It probably won't, so long as it doesn't become a distraction, but investors shouldn't delude themselves into thinking this will heat up sales. Just as it thought 3-D television would lift sales a few years ago only to be saddled with excess inventory it had to write down, buying solar panels at the consumer-electronics giant is a sign of desperation its business model is floundering.

Best Buy has walked up to the brink more than once in recent periods, and this partnership may indicate that the sun is finally setting on its recovery.

Rising like a phoenix
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  • Report this Comment On March 18, 2014, at 11:19 AM, ronwiserinvestor wrote:

    The cloudy skies ahead will be all of the new $0 down solar loan program coupled with much lower pricing being offered by competitors. Solar leases and PPAs both have stricter credit score requirements and do not offer tax deductible interest.

    $0 down solar loans require a much lower credit score to qualify for, no home equity requirements, offer tax deductible interest and not only allow the homeowner to own their system but also retain the 30% federal tax credit and any other financial incentives for a much greater return on investment.

    The market has matured and consumers are quickly learning that it costs far less, as little as 1/3 third the cost to own a solar system versus signing an expensive 20 year solar lease or PPA contract.

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