Investors in big box electronics retailer Best Buy (NYSE: BBY) got a lump of coal in their stockings this morning. Best Buy earnings for the third quarter totaled 54 cents a share, 7 cents or 11% shy of forecasts. Wall Street was expecting 61 cents a share from Best Buy in its earnings report, and the miss sent shares spiraling downward as much as -14% at the open.
It’s not just Best Buy earnings that have investors worried. The U.S. Commerce Department noted this morning that sales at electronics and appliance stores in general were off -0.6% in November. Not a good sign for the holiday rush at Best Buy – or retailers like video game merchant GameStop (NYSE: GME) and mall mainstay RadioShack (NYSE: RSH). GME opened down a little more than -1%, and RSH stock was off as much as -3% in early trading.
Also bleak for Best Buy is its eroding market share. BBY saw its market share decline -1.1% compared with Q3 2009. What’s more, Best Buy predicted its domestic market share will decline for the full fiscal year over 2009 numbers. Ouch.
To top it off Best Buy revised down its guidance for the full year, with an EPS target of $3.20-$3.40. That’s down from previous Wall Street forecasts of $3.59. Making matters worse is that Best Buy is incorporating a 12 cent EPS boost thanks to recent BBY stock buybacks – which mitigated the slide, but apparently not enough to help the company hit its target.
If you’re a Best Buy stockholder looking for something to like in this ugly early Christmas present, there’s not much to be happy about. But try these on for size like a good little boy or girl who just unwrapped lime green and purple pajamas from grandma: The good news is that these BBY earnings or for the third quarter of 2010, and do not reflect holiday sales. Theoretically things could turn around. Another mildly encouraging sign is that the U.S. Commerce Department report released early today showed overall retail sales had increased by 0.8% in November, better than an expected increase of 0.5%, and October sales figures were also revised upward. That shows consumers are alive and well, even if they are still not opening their wallets for electronics.
But the sad reality is that real growth for investors is likely outside of this battered retailer – and in the companies stealing Best Buy marketshare.
As for what those picks are, that’s unclear. Is it electronics discounters like Walmart (NYSE: WMT) and
Costco (NYSE: COST) leveraging their low-price brands? Is it from new tech and media companies like Apple (NASDAQ: AAPL) and Netflix (NASDAQ: NFLX) which are supplanting the old model of TVs and stereos as the preferred form of home entertainment?
It may be hard to tell in the short-term, but after the holiday shopping season we may be able to find out the new heroes of home entertainment by looking at sales of the latest gadgets. The only thing that’s for certain right now is that fewer shoppers are picking up those gadgets at Best Buy.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow Jeff on Twitter at http://twitter.com/JeffReevesIP.
