Electronics a tough sell yet Best Buy stands by forecast

Oh to be a Electronics Retailer during a recession, roughly as sought-after a profession as 'Big 3 personal flight crew', after that first trip to Washington. But Best Buy (BBY) is holding on in the midst of turbulence while its main competitor has all but bowed out. With Circuit City Stores (CCTYQ) trading OTC and trying to stay afloat, BBY would seem to be serving for the match. If only customers would come to the stores and buy that is.

With profits down 77% year over year in the latest quarter it appears on the surface Best Buy is facing some troubles of its own. But the company is being run effectively despite consumer spending reports that are on record as the worst since the early 30s.

So to the numbers: Quarterly profits of $0.13/share ($0.35/share excluding special items) were better than expected. Analysts had the numbers pinned at $0.24/share excluding special items. Revenue also topped expectations at $11.5Billion vs. $11Billion estimated. For retailers the all important same-store-sales metric was watched closely and Best Buy numbers fell about 6% for stores open longer than 1 year. Now in this environment, a 6% drop has to be put in perspective and seen as a slight positive. Overseas sales rose slightly, fueled by growth in mobile phones. So, somewhere, somethings, have people buying. Nonetheless Best Buy is taking a cost cutting approach to share price appreciation, offering buyouts to thousands of employees and slowing store growth in North America and China. Best Buy hopes to cut capital costs by 50% over next year. Certainly ambitious!

For those workers who don't accept the buyouts, there will certainly be job cuts ahead at Best Buy Corporate. The outlook is much brighter for shareholders though, as cost cuts will certainly help profitability in a tough 2009 and the fact that Best Buy kept its lowered profit forecast in tact over the Christmas helped matters as well.

The company expects to meet its range of $2.30-$2.90 (a wide range to be sure for the year through February) and falls in line with analyst estimates of $2.47 for the year. The positives in this report propelled shares higher by $2.50 at the end, and the Fed rate-cut fueled shares to close higher by 18% ($4.21/share). This also notched the BBY P/E ratio to near 9, which is reasonable in most respects but perhaps not in this climate.

Nonetheless, the retailer should trade in a P/E range of high single-low double digits going into 2009, so while today's rise (and its recent climb from $17) makes Best Buy a less attractive on a valuation basis, the competitive landscape clearly leans heavily towards BBY, making it an attractive hold for when America rises from the consumer spending blues.

Those on the fence, it will likely be available for the mid 20s soon, which makes it a steal for the next year and a half.

Disclosure: Author is long BBY

Best Buy beats expectations, Outlook optimistic

Electronics retailer Best Buy (BBY) was in Wall Street's cross-hairs this morning and certainly had a tough act to follow. After the April Fools day 400 point rally in the Dow Jones, Best Buy was set to report its quarterly numbers and they turned out to be no joke indeed. In a start to the year pegged with Recession and Consumer Spending worries Best Buy reported profits of $1.71/share or $737Million.

That compared to last year's $1.55/share and $763Million. The big share repurchase program helped the numbers compare favourable year over year. Yes profit was down fractionally, but analysts were expecting even lower results with forecasts of $1.65/share earnings. Revenue came in above expectations also ($13.42Billion v $13.19Billion expected). Just goes to show that the consumer isn't dead just yet!

While 2008 may prove to be challenging in a tightening US economy, Best Buy provided some optimistic guidance numbers that pleases the analysts on Wall Street. The company gave a range of $3.25 to $3.40 per share in earnings on $43Billion to $44Billion in revenues. Analysts expected $3.31 on $43Billion in revenue. Not bad considering management basically came out and said that the year was as turbulent as any other they've ever seen. So anytime a company predicts a hard year but maintains almost 20% growth investors need to stand up and take notice. Especially when that company's shares currently price at a Forward P/E of just over 13. Meaning that the Price to Earnings Growth number stands at a tiny 0.66.

All those metrics point to Best Buy being a potential steal at these levels, and in fact Standard & Poors makes note that Best Buy is among the list of most undervalued growth names. However as all things in this marketplace, there's a downside. If the US economy declines further, devaluing the US dollar--in the face of quick-rising essential commodities, ala Oil--Best Buy, like most retailers will feel the shoppers cash-pinch. And with Best Buy essentially selling Non-Essentials, this type of economic outlook is management's worst fear.

At the end of the day though, if there's an electronics retailer to own it is the one that is wiping the floor with it's main competitor, namely Circuit City (CC), which has reported quarter after quarter of losses.

Disclosure: Author owns BBY

Buyers flock into the Markets as Fed Cuts Rates by 50 Basis Points

The moment the markets were waiting for arrived at last. The Federal Reserve Interest Rate decision. A decision that swung markets heavily into Bullish territory as Interest Rates were cut by a full half percentage point. The Dow finished higher by 336 points while the Nasdaq and S&P were higher by 70 and 43 points respectively. All accounting for gains of over 2.5%.

The morning was highlighted by positive earnings and guidance from Electronics Retailer Best Buy (BBY) and Investment Bank Lehman Brothers (LEH). Best Buy posted earnings of $0.50/share versus the expected $0.44/share and beat the top line Revenue expectations of $8.45Billion by posting a monster number of $8.75Billion. Best buy even strengthened and tightened its outlook for the full year giving the market something to cheer about.

Lehman Brothers admitted that losses from Mortgaged related investments hit earnings but it compensated by posting dramatic tradings gains which more than offset those losses. As such Lehman lifted the entire banking and investment banking industries pushing stock higher broadly, and lifting its own shares 10% in the process. With the Fed's announcement of the 50 basis point rate cut, stocks immediately flew higher and continued to rally towards the end of the day. The biggest investment banks, which report earnings in the near future used the Lehman numbers to push even higher.

Goldman Sachs (GS) made back $13 to break the $200 share price barrier, a gain of almost 7%, while Morgan Stanley (MS) gained almost 6%. Financials came back strong on the news as not only did the Fed cut the interest rate by .5% but also cut the discount rate by another .5%. This was seen as a tremendous positive on the financial sector and investors piled back into these stocks.

Apple (AAPL) made it official this morning that the iPhone was coming to the UK. It announced a partnership with O2 to be the exclusive carrier of iPhone in Britain. Shares were up slightly on the news but drifted with the market before taking off following the rate cut announcement.

While investors were cautious approaching the Fed meeting, there's reason to cheer and smile now! However, the drastic 50 basis point cut should be viewed with still some caution, as once the news sinks in will investors be reading too much into the actions of the Fed and their long term economic effects? Its hard to say at this juncture because the main goal here was to alleviate the pressure from the credit collapse and get people talking economic strength again and not recession. I for one think that having a 50 basis point cut splashed across front page newspapers all across the US will spur optimism and a renewed faith in economic well-being. This is the best thing the Fed could hope for, and its a lot better for the average Joe to be discussing strength rather than a possible oncoming recession.

With the Fed pointing the market in the right direction its time to look at Technology for the holidays and the upcoming earnings seasons. October will be a month worth watching as major names in Tech report earnings and give guidance for their holiday expectations. The guidance game will be one to watch intensely and if Best Buy has given any indication today its that it'll be a holiday filled with shoppers.

Disclosure: Author is long AAPL, BBY, GS