Best Buy Co Inc (BBY) stock owners won’t be hearing tales of sugarplums and rainbows when the electronics retailer reports earnings for the holiday season on Thursday morning. We pretty much know that for a fact already.
That’s because Best Buy came out in mid-January and warned investors the fiscal fourth quarter, which ended in January, wouldn’t be so hot. In fact, the estimates the company provided were so cold that Best Buy stock plunged 10% on the news.
Cautioning BBY stock owners that same-store sales over the holiday period had fallen 1.2% in the U.S., it was a far cry from the year-ago 3.4% SSS increase. Keep in mind that those are just numbers from the nine weeks ended Jan. 2, 2016, so there’s still a whole month that’s unaccounted for — but the bulk of the results are in, and they’re not good.
Don’t Roll the Dice With BBY Stock
I don’t like to roll the dice by investing in stocks that have come out and publicly warned investors about bad quarters before reporting them. While it’s true that at this point, the bad news is hypothetically built into the Best Buy stock price, I have my doubts.
The day before Best Buy announced its miserable holiday results, shares traded for $29.26. They dropped 10% the next day, closing at $26.43, and reached a nadir below $26/share a few days later. Today, BBY stock trades for more than $30/share — above where it was before investors knew about the lackluster quarter.
How does that make sense?
For the full quarter, Wall Street expects BBY to post revenue of $13.61 billion, a decrease of 4.2%. BBY earnings per share are expected to fall to $1.39, a 6% year-over-year decrease.
Despite trading at just 11 times earnings, BBY stock is hardly worth the stretch going into Thursday’s report. Not only does it join the likes of Chipotle (CMG) and GoPro (GPRO) as companies that have warned about extremely weak holiday quarters, but the retail industry as a whole has put up a poor showing in recent months.
Industry leader Amazon (AMZN) has seen shares fall nearly 20% in 2016 as a huge earnings miss worried investors. And Walmart (WMT), the king of brick-and-mortar retail, is fresh off reporting a horrendous Q4, missing on revenue and projecting soft first-quarter sales, too.
It seems that Americans just aren’t shelling out the extra scratch they’re saving by enjoying lower prices at the pump. And if they are spending it, they’re spending it in a cutthroat retail environment where merchants are slashing prices and margins just to juice revenue numbers.
Best Buy in particular is suffering from falling sales of mobile phones, which saw SSS fall 7.2%. And Goldman Sachs recently downgraded BBY stock to “neutral” from “buy,” citing the “sluggish wireless market.” So this is a real, additional concern for shareholders.
There’s just too much going wrong — both in the retail industry and at Best Buy in particular — to take a flier with BBY right before an earnings report we know will be weak. Tread carefully, investor: “Best Buy” certainly doesn’t refer to the Best Buy stock price.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
