Bby Store

Image source: Best Buy.

Consumer electronics retailer Best Buy (NYSE:BBY) reported its holiday sales results on January 14, and the market was not happy. The stock plunged 10% following the news, carving out a new 52-week low in the process.

The results from Best Buy certainly appear disappointing. Total sales slumped 3.6% year over year during the nine-week period, driven by a 1.2% decline in domestic comparable sales and substantially lower international sales. On the international side, the sales decline was caused by the ongoing consolidation of brands in Canada and currency fluctuations, and Best Buy had previously guided for a big revenue decline. But on the domestic side, the company fell short of its own expectations.

Best Buy has reported positive domestic comparable sales growth in each of the past four quarters, and during the holiday season of 2014, the company posted an impressive 3.4% increase. Previously, the company had guided for roughly flat revenue during the fourth quarter, but the lackluster holiday results led Best Buy to cut its guidance. The company now expects domestic revenue to decline by 1.5% year over year.

All of this sounds pretty bad, but Best Buy's results need to be put in perspective.

Smartphones giveth, and smartphones taketh away
As sales of smartphones have soared since the introduction of the original iPhone, Best Buy has become a major seller of the devices. But smartphone growth is slowing down, and weaker-than-expected demand for smartphones during the holidays was the main driver of Best Buy's disappointing results. Comparable sales of computing devices and mobile phones slumped 6.7% during the holiday season, dragging down the company's results. Excluding mobile phones, Best Buy's domestic comparable sales would have increased year over year, driven by strength in wearables, home theater, and appliances.

Indeed, comparable sales in the consumer electronics category rose by 4.3% year over year, while entertainment product sales jumped 0.5%, and appliance sales rose 13.4%. NPD reported that the consumer electronics categories that it tracks suffered an industrywide sales decline of 4.8%, which suggests that Best Buy gained market share during the holidays.

Market-share gains for Best Buy shouldn't be all that surprising given the awful results posted by smaller retailers like Conn's (NASDAQ:CONN) and HHGregg (NASDAQOTH:HGGGQ). Earlier this month, Conn's, which operates about 100 stores mostly in the southern United States, reported a 5.6% drop in December comparable-store sales, with comparable sales of consumer electronics tumbling 20.5% year over year. Meanwhile, HHGregg, which operates 227 stores, reported an 11% decline in comparable-store sales for the quarter ending on December 31, with consumer electronics sales slumping 8%, and sales of PCs and tablets falling by 35%.

Given the industrywide decline in sales of consumer electronics, as well as the abysmal results reported by both Conn's and HHGregg, Best Buy's holiday performance comes out looking pretty good, all things considered. Best Buy's business is driven by product cycles, and while sales of products like 4K TVs and wearables were strong, the lack of exciting new smartphones turned out to be a serious problem for the retailer.

Still a solid year for Best Buy
Despite the decline in holiday sales, Best Buy's 2015 was still positive for the company. The company expects its total revenue to decline by 4% during the fourth quarter, with non-GAAP operating margin slumping by 15 to 30 basis points. In the worst-case scenario based on this guidance, Best Buy will produce $750 million of non-GAAP operating income during the fourth quarter, for a full-year total of about $1.56 billion, up slightly compared to 2014. Based on this number, full-year non-GAAP EPS should be roughly $2.63, excluding the effect of any share repurchases occurring after the end of the third quarter. This is essentially flat compared to 2014, despite the weaker holiday season.

Shares of Best Buy now trade for about 10 times this estimate, and that multiple is even lower if you back out the $1.7 billion of net cash on the company's balance sheet. Of course, no one likes falling revenue and stagnant profits, but Best Buy's weak holiday sales had little to do with Best Buy itself. The company outperformed the industry, winning market share from smaller competitors, and its online sales, while still less than 20% of its total sales, continue to grow at a double-digit pace.

Best Buy's turnaround strategy of slashing unnecessary costs, focusing on customer service, and investing in e-commerce is paying off, and while the noise of product cycles, economic uncertainty, and disappointing holiday sales may be giving investors pause, Best Buy remains a solid pick for patient investors.

Timothy Green owns shares of Best Buy. 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.