Best Buy and Macy’s Join Forces: Is It Time to Buy? (BBY, M)

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Best Buy (BBY) and Macy’s (M) plan to test licensed consumer electronics sections in 10 department stores is so crazy, it just might work.

Best Buy and Macy's Join Forces: Is It Time to Buy? (BBY, M)Besides, given all the challenges they face, what do these retailers have to lose?

Best Buy has been making good progress in its turnaround, but BBY still doesn’t look great as a long-term holding. Meanwhile, Macy’s — the nation’s largest department store operator — is getting no help from any pick up in consumer spending.

If M and BBY find that this partnership can help traffic and sales, perhaps a widespread rollout could provide a material boost to revenue at both retailers.

Best Buy and Macy’s both need to try anything and everything to grow top-line results.

BBY: A Best Buy If Not for the Dying Industry

Best Buy’s story is well known by now. Very few consumer electronics have managed to survive attacks from Amazon (AMZN), Walmart (WMT) and other low-price sellers.

Marked for death more than once, BBY stock has offered investors some huge returns if they timed their entry just right, but it’s hard to like it for the long haul.

True, against all odds, Best Buy’s turnaround appears to be working. In the most recent quarter, BBY beat Wall Street estimates for the eleventh consecutive quarter. Even more importantly, BBY beat on the top line for the third quarter in a row. And same-store sales — a critical measure of health — surprised to the upside for the second-straight quarter.

Sales strength was led by large screen TVs, appliances and phones, which all indicate that Best Buy is winning its war against showrooming (when consumers look at in-store goods before purchasing online). But BBY’s investments in its online store have allowed it to capture sales that used to take place in its physical locations.

That’s a big deal.

That said, it’s hard to like brick-and-mortar retailers of consumers electronics these days. The longer-term trend is simply not in its favor.

Macy’s Needs Help Too

Macy’s struggles are more recent, as a shift in spending patterns have left the department store operator playing catch up when it comes to capturing consumers’ discretionary dollars.

Macy’s second-quarter sales and earnings were awful, falling well short of analyst estimates. M named a number of culprits for the disappointing quarter, but the only thing that really mattered was weak consumer demand for the sorts of wares Macy’s peddles.

And it’s not just a single quarter, sluggish sales have become a troubling trend for M, who has now missed average revenue estimates for seven consecutive quarters, as stated by Thomson One Analytics. And earnings per share have come up short for two straight quarters, marking misses on three of its last five quarterly reports.

And the profit misses are getting wider: M’s per-share earnings disappointed by 12 cents in the latest period; and in the first quarter, EPS fell short by 6 cents.

That makes it imperative for Macy’s to come up with creative ways to improve traffic and sales, and this BBY partnership certainly qualifies.

Bottom Line

With that said, M and BBY joining forces isn’t a bad idea.

As old-line retailers, there’s bound to be overlap between the type of person who shops at Macy’s and the typical customer of Best Buy. And Macy’s president, Jeff Gennette, noted the overlap in demand as we fast approach the holiday shopping season:

“Our customers have expressed interest in electronics for self-purchase and gift-giving, and this collaboration with Best Buy reinforces Macy’s as a shopping destination throughout the year for the products that are most in demand.”

And the downside is limited, after all. If this partnership bears fruit, it just might add to top-line results farther down the road.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/macys-best-buy-m-stock-bby/.

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