Investors in Best Buy (NYSE:BBY) know all too well just how tough it can be to deal with volatile share-price movements. For the big-box electronics retailer, hopes for a full recovery from the company's disastrous downfall in 2011 and 2012 have met with episodes of pessimism on several occasions, sending investors mixed messages about whether Best Buy will ever return to its former perch atop the retail world.
In the latest sign of this tug-of-war, Best Buy climbed 15% in November; but it has given back 8.5% in just the first four days of this month. Let's take a closer look at Best Buy and its latest news to figure out what's whipsawing its share price so violently.
Best Buy declares victory
The biggest contributor to Best Buy's November gains came after the retailer announced its fiscal third-quarter results. Revenue rose by less than 1%, but comparable-store sales jumped 3.2% within the U.S., and adjusted earnings per share from continuing operations soared nearly 80% from year-ago levels. Instrumental in the recovery was the contribution from Best Buy's e-commerce channel, with comparable online sales soaring 21.6%, demonstrating Best Buy's efforts to fend off competition from Amazon.com (NASDAQ:AMZN) and other online electronics retail outlets.
During the key Thanksgiving weekend, Best Buy initially proved its online prowess, announcing record levels of website traffic as independent analysts reported roughly a 16% boost in online sales. The results would have been even better if Best Buy hadn't suffered deteriorating website quality that forced it to shut down its site briefly during the weekend. As shopping trends have moved away from the former reliance on brick-and-mortar locations toward the convenience of online purchases, Best Buy's strategy to focus on beefing up its e-commerce portal has proven prescient.
Can Best Buy keep up its momentum?
Yet, by this week, Best Buy's optimism had waned. Some investors worried that revenue gains sparked by aggressive promotions like its iPad mini 2 sale could come at the expense of lower margins. Moreover, reports from the National Retail Federation of an 11% drop in overall consumer spending during the long weekend called into question whether Best Buy could participate enough in the surge in online buying to offset lost floor traffic.
For its part, though, Best Buy believes that more good times lie ahead. As CEO Hubert Joly noted in the earnings release, Best Buy expects its holiday plan to succeed by emphasizing the most lucrative product categories, better mobile-phone sales options, smarter marketing promotions and gifting strategies, and improved inventory management.
Moreover, cost reductions have helped Best Buy's bottom line, with $65 million in Renew Blue savings during the third quarter bringing the overall total close to $1 billion. Yet, other company officials note the highly competitive holiday season as a potential roadblock to further growth, and the sensitivity of consumers to their financial condition when considering big-ticket purchases is a constant threat.
More importantly, Best Buy has turned what many used to see as the handicap of its big-box stores into an asset. By emphasizing in-store pickup and using its store locations as distribution centers, Best Buy aims to make electronics shopping as convenient as possible for its customers.
Best Buy has already come a long way, and the extent of its transformation shows just how much effort it has taken to help the retailer avoid becoming another victim of the e-commerce revolution. Best Buy has plenty of work left to do; but if it can succeed, bullish investors can expect recent turbulence to shake itself out in the long run.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. 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.