technology

Best Buy Overcomes Amazon Threat With Best Christmas Since 2003

Updated on
  • Retailer’s revenue forecasts exceed analysts’ estimates
  • Online sales increase 17.9 percent during holiday period

Best Buy Sales Up

Best Buy Co. delivered a rosy outlook for the year ahead after its best holiday sales performance in more than a decade, delivering a much-needed boost to the retailer’s turnaround plan.

The company’s shares rose Thursday after forecasting first-quarter and full-year revenue ahead of analysts’ estimates. Same-store sales over the holiday period increased the most since 2003, fueled by purchases of mobile phones, video-game consoles, appliances and smart-home devices.

Despite sitting squarely in Amazon’s crosshairs, Best Buy has weathered the internet giant’s encroachment better than most retailers. It helps that the consumer-electronics industry had its best holiday period in years, boosted by new gadgets like Nintendo’s Switch, while rivals such as Sears Holding Corp. and Walmart Inc.’s Sam’s Club have closed stores.

December to Remember

Best Buy posted its best holiday sales growth in more than a decade

Source: Company reports

“We believe Best Buy posted one of its most impressive performances in recent memory,” Anthony Chukumba, an analyst at Loop Capital Markets, said in a note. “We are also encouraged by management’s better-than-expected 2018 guidance.”

Savings from a U.S. tax overhaul that has slashed corporate rates could also help accelerate Best Buy’s newer initiatives to keep shoppers from defecting to Amazon. These include in-home sales advisers and same-day delivery of online orders. Best Buy boosted its long-term profit forecast because of the expected tax savings of about $180 million.

The shares rose 2.5 percent to $74.27 at 10:24 a.m. in New York, overcoming a broader market slide. They had gained 5.8 percent this year through Wednesday’s close.

Less Competition

While it still must contend with Amazon, Best Buy will face less competition from brick-and-mortar rivals this year. Sears, which remains a major vendor of household appliances, plans to shutter 39 locations by April, while Sam’s Club is closing 63 of its warehouse stores. Rival HHGregg Inc., meanwhile, filed for bankruptcy a year ago, crippled by bigger rivals and online merchants.

With fewer options, gadget shoppers are increasingly looking to Best Buy. Visits to its stores increased 3 percent in the holiday period, according to a survey from Consumer Edge Research, a rebound from the previous year’s 3 percent decline.

Busier at Best Buy

Shopper traffic at the electronics retailer has improved in recent quarters

Source: Consumer Edge Research monthly survey of 2,500 U.S. families

Note: Consumers were asked if they visited the retailer over the previous 30 days

“Best Buy continues as a bright spot in U.S. retail,” Charlie O’Shea, an analyst at Moody’s Corp., said in a note. “Consumers still value the store experience.”

The company said it sees full-year revenue between $41 billion and $42 billion, ahead of the $40.86 billion expected by analysts polled by Bloomberg. For the current quarter, same-store sales should rise between 1.5 percent and 2.5 percent, Best Buy said in a statement.

Not all the news was good, though. Operating profit margins narrowed in the holiday period due to compensation expenses and other investment, the company said.

Profitability concerns have weighed on the company’s mobile-phone business, and late Wednesday Best Buy said it would shutter all of its small, stand-alone mobile-phone stores by the end of May. The retailer began to open them more than a decade ago, before Apple Inc.’s first iPhone debuted, and at one point had more than 400 locations. But dozens have closed in recent months, and the business now represents just over 1 percent of total revenue.

“Cell phone sales growth is now far less impressive,” Neil Saunders, an analyst at GlobalData Retail, said. “The rationale for a standalone mobile store has faded.”

Best Buy’s online sales increased 17.9 percent during the holiday quarter, an acceleration from last year’s 17.5 percent gain. Sales of computers and mobile phones, the company’s biggest product segment, reversed declines from a year ago to post 9.6 percent growth.

The company told analysts that its sales growth will moderate, as the holiday quarter benefited from favorable comparisons to last year, when it suffered product shortages. The timing of the Super Bowl also pulled about $100 million of sales into the just-ended quarter.

“Looking ahead, it is unlikely that Best Buy will maintain this level of revenue growth,” Saunders said. “That said, we expect comparable sales to remain positive over the full fiscal year.”

(Updates shares in sixth paragraph and adds analyst comment in last paragraph.)
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