Image Source: Flickr user Mike Mozart of Jeepers Media.
For big-box electronics retailer Best Buy (BBY -0.11%), its recently reported second quarter was a sight for sore eyes. While analysts expected a year-over-year revenue decline of 2%, to $8.29 billion, the company reported a 0.8% gain to $8.53 billion. While its revenue performance may seem inconsequential, the disclosures indicate Best Buy increased U.S. same store sales 2.7% with an EPS beat of $0.49 per share -- versus expectations of $0.34 -- found an ebullient audience. Shares rallied 12.6% in light of the report.
All in all, this was a good report for a company that's still behind the curve post-Great Recession. As compared to big-box warehouse/supercenter peers Target and Wal-Mart, Best Buy's specialty-retailing model has continued to struggle. As the two former stores have mostly regained the market capitalization lost during the macroeconomic fallout, Best Buy faced continued pressure from online retailers, which were increasingly turning Best Buy to a showroom filled with products, but not with sales.
While the hire of current CEO Hubert Joly in 2012 was somewhat puzzling, it appears he's turning around the ship. During the conference call, Joly discussed the company's competitive advantages to drive financial results -- two of which are its positioning in the marketplace and vendor partnerships. Perhaps the best example of Best Buy's success here is its recent deal to become the first vendor to carry the Apple (AAPL 0.64%) Watch.
Apparently a good deal for both companies
Although Apple doesn't specifically report Apple Watch sales figures, the decision to partner with Best Buy seemed at odds with Apple's -- and its new retail head Angela Ahrendts' -- plans for a tightly controlled release that emphasized Apple's retail stores and a personalized approach. But, more availability generally leads to more sales and that appears to have happened here. Apparently, Best Buy's position as the shop for technology's early adopters won over Apple executives.
Apple Watch. Source: The Motley Fool
Initially, on Aug. 7, Best Buy had the device available in only 100 stores with an expected rollout to 300 locations by the end of the season. However, it seems both companies have expanded their partnership with Best Buy, reporting it will carry Apple Watch in each of its 1,050 big-box stores and 30 of its smaller Best Buy mobile stores by the end of September. This should result in more Apple Watch sales as Best Buy continues to court early adopters and Apple brings watchOS 2 to market next month.
Best Buy is building upon its vendor partnership
Perhaps more important, however, is Best Buy's continued partnership with Apple overall. And it seems Apple is getting more real estate inside Best Buy with its store-within-a-store concept. Joly remarked 520 of its 740 Apple stores within Best Buy locations are getting larger fixtures to hold more phones and iGadgets. In addition, Best Buy will begin selling Apple Care protection plans and starting a pilot program as an Apple Authorized Service Provider.
For Apple, its watch is a rather small part of its total revenue haul. In the recently reported third-fiscal quarter, Apple's only reported quarter of Apple Watch sales, its catch-all other products category where it includes watch-based revenue provided $2.6 billion -- or 5.3% -- of its total revenue haul of $49.6 billion.
Over the last four fiscal quarters, however, Apple has reported nearly $225 billion in revenue. That's amazing for a device-focused consumer electronics company. Apple will need strong participation from all its products to keep its top line briskly growing -- through its actions, it appears Best Buy thinks it can and is looking to take advantage of Apple's continued popularity.
