When Will Best Buy Get it Right?

Best Buy reports, and once again it's not pretty.

Aug 26, 2014 at 1:30PM

Last year's market darling retailer continues to be a dud in 2014. Shares of Best Buy (NYSE:BBY) opened lower on Tuesday after posting another disappointing quarter. 

Revenue slipped 4% to $8.896 billion, just shy of the nearly $9 billion that analysts were targeting. Store-level performance continues to be a problem with comps slipping 2% at its domestic stores.

Online sales soared 22% and now account for nearly 8% of Best Buy's domestic revenue, but that only makes the chain's comps look worse. The backpedaling retailer pads its comps by adding BestBuy.com sales into the mix. That may seem fair for orders placed through the website and picked up at the store or for online orders placed inside the store and even for orders that it's now shipping at the local store level, but it's unfortunate that so many chains these days are blurring store-level performances by dividing traditional e-commerce sales into existing stores.

Thankfully it wasn't all bad at Best Buy. Adjusted earnings climbed from $0.32 a share last year to $0.44 a share this time around. CEO Hubert Joly's been serious about shaving costs without sacrificing the customer experience, proven by seeing its Net Promoter Score move higher despite slashing SG&A overhead.

However, with adjusted gross margins declining slightly and Best Buy warning that it sees negative comps through the next two quarters it's hard to get too excited here. Shares of Best Buy more than tripled last year -- up a spectacular 237% -- on faith that it was turning things around. Joly's done a solid job in polishing the brand and keeping costs in check but until sales begin moving higher it's hard to see the stock following suit.

What we have in Best Buy is a consumer electronics giant that is blowing away analyst profit targets with ease but failing to get its chin above the top-line bar that Wall Street is setting. We saw this happen three months ago, and Best Buy had to play Grinch to holiday shopping expectations in the quarter before that. 

The long way back
Investors were letting go of Best Buy long before Tuesday's soft open. The stock was trading 20% lower in 2014, even as the major market indices crawl toward fresh highs.

Waiting for the turnaround has grown stale, and even Best Buy executives seem to have gone into rerun ode. 

"We are also seeing ongoing softness in the mobile phone category ahead of highly anticipated new product launches," CFO Sharon McCollam states in Tuesday morning's earnings release. If that sounds familiar, it should.

"We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly anticipated new product launches," went her statement in the prior quarter's earnings release. 

We get it. The iPhone is going to save Best Buy -- even if it didn't do that last year (or the year before). Let's try and find new ways to tiptoe around that next time, shall we, especially after warning of negative comps through the next two quarters when the iPhone 6 will undoubtably be on the market. 

Joly has served Best Buy investors well, and investors that have held on since the beginning of 2013 are still sitting on a huge gain. However, for a turnaround to start we need to hit bottom. We're still not there from a sales perspective, and if we don't get there soon even Joly is going to be hard pressed to find ways to improve the bottom line. 

Best Buy is earning its dividend, but these stocks are doing it better
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers