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Why This Electronics Retailer's Turnaround Cannot Be Ruled Out
September 17, 2014 | About: BBY +0% SNE +0%
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Electronic retailer Best Buy (BBY) released not-so-impressive results for the second quarter. Although the company failed to impress with good revenue, it managed to post some good improvement in earnings. Management is thinking that the company underperformed on the back of weak consumer demand and aggressive competition from its peers, leading to poor sales. Further, Best Buy is expecting a decline in sales in the coming two quarters as well. However, Best Buy is engaged in many initiatives to get better. The cost-cutting initiatives might prove to be a growth driver for it in the future. Let us see how?
Can it turn around?
In the recently reported quarter, Best Buy posted revenue of $8.9 billion. However, the company’s comparable store sales declined by 2%, while its consumer electronics category declined by 2.5%. But despite these upsetting figures, Best Buy managed to post good earnings. It posted EPS of $0.44 as compared to $0.32 per share last year.
Moreover, its sales declining puts pressure on its profit margins. Statistics tell us that the company has fallen for 13 consecutive quarters. Also, the situation is turning worse for Best Buy with negative customer reactions. However, Best Buy is coming up with various initiatives aimed at improving the profitability. The company has made cost-cutting initiatives its prime priority. Further, it has aggressive investment plans to strengthen its e-commerce platform, which will enhance its services of shipping goods directly from its stores to the destination.
The electronics industry is under pressure, and this is putting pressure on Best Buy's margins as well. However, the company is focusing on its Renew Blue Strategy to improve its online business and enhance the in-store experience by providing the right advice to customers. This has helped Best Buy to improve its online sales by 22%. This will also help Best Buy to further explore its opportunities on the online platform.
What the company is doing for a turnaround
Best Buy is looking for a turnaround. It is focused on eight potential areas. Out of these areas, the main focus of the company is on improving and strengthening of the merchandising segment. Best Buy is making moves to improve the overall customer experience with this segment. It has launched new home theaters by Samsung and Sony (SNE) in more than 800 stores to support this initiative. It also opened seven new Magnolia design stores to further develop the home theatre segment, and is planning to open around 50 stores by the end of the year.
This is a smart move from the company, and management also thinks that this will help Best Buy to move into a good position in the appliance category, particularly in high definition 4K TV. Moreover, Best Buy is focusing on marketing strategies to strengthen its promotion. It is now entering a digital world from the analog so it aims to accelerate its marketing initiatives using different ways such as digital media and email campaigns, among other modes.
Best Buy is also focusing on refining its existing service offerings, and with the improvement in merchandising, and adding new offering according to the customer’s needs, the company can get better. Despite these efforts the company might take a hit in its sales as management is anticipating a rough holiday season.
Conclusion
Moving on to financials, it is no doubt that Best Buy is struggling, but the trailing P/E of 10.46 indicates that the company is cheap. The retailer is trying to get over the weakness by various initiatives that it is undertaking, so it might be a good prospect for the long run.
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