Please ensure Javascript is enabled for purposes of website accessibility

Best Buy Turns 50, But Will It Turn 60?

By Rick Munarriz - Aug 19, 2016 at 9:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The consumer electronics superstore chain is holding a huge golden anniversary sale, but it may want to look out for an exit strategy.

Image source: The Motley Fool.

There's a pretty big sale taking place at Best Buy (BBY -1.31%) these days. The consumer electronics retailer kicked off a 50-hour sale last night, offering 50 different Black Friday-esque deals -- online and offline -- through Saturday night.

The big markdowns are happening to celebrate Best Buy turning 50 years old. The original store opened on Aug. 22, 1966. A golden anniversary is as good a reason as any to host a massive sale this summer, and some will argue that it's not the only thing that's on sale. Pull up a Best Buy stock chart, and you'll find a stock that's trading slightly higher so far in 2016 but it's still trading 25% below its all-time peak set three years ago.

Best Buy is holding up far better than the thinning ranks of publicly traded rivals, but it's hard to get excited about the superstore concept's future. Best Buy has made it through half a century, but it's going to be a real challenge to make it through another decade. 

The next step down

Image source: Best Buy.

Best Buy reports its latest quarterly results next Tuesday. It's not likely to be pretty. Best Buy's guidance in May called for flat comps and $8.35 billion to $8.45 billion in revenue, a slight dip in both year-over-year and quarter-over-quarter revenue. Even after aggressively buying back stock over the past year, something that will pad earnings by roughly $0.04 a share, the meandering retailer expects to check in with a profit between $0.38 a share and $0.42 a share. It earned $0.49 a share a year earlier. 

There will be a couple of one-time items holding profitability back. Best Buy's bottom line won't be as ugly as it looks at first glance. However, at the end of the day, Best Buy is just another physical retailer at the wrong end of the digital revolution. 

  • You can save $400 on a 65-inch Samsung 4K UHD TV at Best Buy through tomorrow night, but you're not likely to go back to Best Buy for Blu-rays and DVDs after that. Why would you when the top premium streaming service offers a growing catalog of 4K content?
  • You can save $180 on Beats Studio wireless headphones, only to never buy another CD because your entire audio library is on a flash drive or a streaming service. 
  • Select MacBook Pro computers are being offered at $150 off and the iPhone 6s starts at $1 with two-year activation, and either device will free you from the physical media items that would drag you into Best Buy on a weekly basis when the chain was relevant and e-commerce was not. 

Best Buy will be selling a lot of heavily discounted electronics today that will require less visits to physical stores in the future. Best Buy stock has held up better than its smaller and weaker rivals as a beneficiary of their demise, but sooner or later Best Buy won't be able to lean on taking market share from lesser competitors and online sales to merely post flat comps. It will be gnawing on itself, and that's why it's dangerous to make a long-term bet on the Best Buy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$72.36 (-1.31%) $0.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.