Best Buy Earnings Deal BBY Stock a Blow

by Jim Woods | November 19, 2013 1:03 pm

Best Buy (BBY[1]) posted solid earnings this morning, but BBY stock is still sinking quickly in today’s trading.

bby-stock-best-buy-earningsFirst, the good news for Best Buy stock investors: The popularity of BBY among shoppers has increased quite a bit of late. Everyone knows about Best Buy and I’d venture to say that, if you’re reading this, you’ve probably been to the big-box electronics retailer at least once over the past five years. I’d also venture a guess that you may have even been to a BBY store in the past 12 months or so as it regains popularity.

This popularity surge among shoppers was reflected in the Best Buy earnings release of third-quarter numbers today. The Best Buy earnings report showed that the company logged net income for the three months ended Nov. 2 of $54 million, or 16 cents per share of BBY stock. That’s a huge increase over the loss of loss of $10 million, or 3 cents per share of BBY stock, a year ago. It’s also better than Wall Street analysts were anticipating for Best Buy earnings.

And on the revenue front, BBY saw top-line sales of $9.36 billion, which was just about in-line with expectations.

One key metric for retailers is same-store sales, which is a year-over-year comparison of stores open at least a year. On this front, the Best Buy earnings report showed strength, with BBY comps up 0.3% worldwide. That includes a 1.7% U.S.-store increase during the quarter, and a 15.1% increase in online sales. International sales fell, however, declining 6.4% in the quarter.

Given the rather strong Q3 earnings, you would think that BBY stock might be reacting well to the news. Well, that notion would be incorrect.

BBY Stock Gets Hammered

BBY stock got slapped with a decline of nearly 9% decline midway through Tuesday trade. Why? Well, Best Buy stock was getting punished for its fourth-quarter margin warning.

Best Buy basically came out and said it wants to win the holiday season shopping wars. As such, BBY plans to embark on an aggressive program of price matching, door buster and other deep discount deals. The company also said it would open on Thanksgiving Day. The increased deals and its commitment to winning over holiday shoppers could come at the expense of margins, and the admission of such directly from the company caused the shares of Best Buy stock to drop.

Essentially, the company is saying it will give up some Best Buy earnings in Q4 if that means increasing market share during the holidays. That may be a winning strategy for the company in the long run, but over the short term BBY stock investors don’t like it.

For BBY stock, the profit margin warning is the first real reason to sell the shares all year. So far in 2013, Best Buy stock is up an incredible 235%, as traders have bid up the rebound in the once-tattered retailer.

Now the question is obvious: Will Best Buy’s focus on winning the wallet this holiday season be a long-term positive for BBY stock?

I think that if you’ve been waiting for the right time to get into BBY stock for a long-term hold, then today’s pullback might just be the opportunity you’ve been hoping for.

However, if you’re currently long Best Buy stock with a nice profit, today’s price action might be the excuse you need to bank gains — and then go out and buy your friends and family some electronic goodies at a deep discount from Best Buy.

As of this writing, Jim Woods did not own any of the stocks mentioned here.

  1. BBY:

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