Weak Outlook Clobbers Best Buy Stock (BBY)

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Best Buy Co Inc (BBY) reported strong holiday sales, but a weak outlook is making Best Buy’s chart look all too familiar: For the second year in a row, BBY is tumbling in January on a sales report.

Best Buy logo Best Buy stock BBY stockThe troubled consumer electronics retailer was the best performing stock in the S&P 500 in 2013 when managed not to declare bankruptcy or go out of business. (Hey, it seemed like a real possibility at the time.)

Between the loss of market share and pressure on its prices, it didn’t look like BBY could hold out forever against Amazon.com (AMZN) and Wal-Mart Stores, Inc. (WMT), among other online or discount retailers.

Priced for death, Best Buy stock came charging back when it was clear the retailer still had a chance. But the an abysmal holiday selling season a year ago threw ice water on hopes for a second act for the chain. At this time a year ago, Best Buy stock gave up about 40% of its 2013 gains.

Interestingly, Best Buy stock managed to slowly grind higher throughout 2014. Although BBY finished the year in negative territory, heading into Thursday it had regained pretty much all the ground lost at the beginning of 2014.

And now Best Buy stock is in freefall again.

Groundhog Day for Best Buy Stock

A year ago, Best Buy stock blew up after a surprise drop in holiday sales. This year, the holidays were great — 2015 is the thing in doubt.

BBY said U.S. holiday sales rose more than 4%, boosted by a sharp increase in online sales and strong demand for big-screen TVs and smartphones. (Tablet sales were noticeably weak.) For the nine weeks ended Jan. 3, overall domestic revenue rose to $10.1 billion from $9.7 billion.

A big part of that gain came from online sales. In the U.S., comparable online sales increased 13.4% over the nine-week holiday selling period. Same-store sales — a key measure of a retailer’s health — gained 2.6%. Even appliance sales showed signs of strength, rising almost 10% year-over-year.

The market, however, is forward-looking. Holiday 2014 is old news. Where Best Buy stock is headed depends on future results, and based on what BBY said, things could get ugly. After all, it’s not like the business of selling consumer electronics primarily through bricks-and-mortar stores suddenly got easier.

BBY will continue to fight on a number of fronts, the company said. Deflationary pricing, weak industry demand, declining demand for extended warranties and exchange-rate volatility are just some of the headwinds BBY and Best Buy stock face this year.

Grappling with these pressures will require investment on Best Buy’s part, and that will pinch profits. Making matters worse, same-store sales for the first half of the year are forecast to be anywhere from flat to a low-single-digit decline. Higher costs and lower sales are never good for earnings.

Best Buy stock has been on one heck of an interesting ride the last couple of years, but that doesn’t make it a reasonable investment. Yes, the company has survived, but it has hardly thrived, and it may only be a matter of time before it starts looking like the walking dead once again.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/weak-outlook-clobbers-best-buy-stock-bby/.

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