It wasn’t long ago when our view of the technology retailer Best Buy was quite bleak: The consumer being hit really hard by the housing and stock market situations has left few money to spare for buying the latest cool gadgets. Not only that, but the situation got much worst really fast. In mid-November Chief Executive Brad Anderson said: “Rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen.” Best Buy traditionally buys their inventory for the busy holidays season ahead of time based on their expectations, but amid the rapid decline in consumer spending it is being left stuck with lots on unsold merchandise pushing their prices lower. Looking around the Industry, retailer Circuit City wasn’t fairing too well either. For all those reasons, our view of Best Buy was bearish.
However, Circuit City’s filing for bankruptcy turned out to be a good thing for Best Buy. Although it confirms our bleak outlook for companies in the Retail (Technology) Industry, consumers amidst the closings of stores, or fear and uncertainty about Circuit City’s future are shopping at Best Buy instead. Analysts were also expecting a very poor performance but Best Buy managed to deliver in great part due to this somewhat unexpected event.
Looking forward, our outlook for Best Buy is mildly bullish. Our major concern remains the health of the consumer, however, Best Buy’s management and business strategy remains one of the best out there. The latest actions by management (cost cutting and decreasing the number of new stores) are likely to keep the company profitable and position it to do great once the consumer health improves. Barron’s recent article agrees that this is a great opportunity to look into investing in Best Buy.
Companies mentioned in the article:
- Best Buy Company (BBY)
- Circuit City Stores, Inc. (CCTYQ)
Referenced articles:
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Posted
Sun, Dec 21 2008 11:26 PM
by
TheTradeMap.com