Best Buy Tells You Where to Put Your Money

The consumer's fading -- not dead or dying, but fading. Best Buy (BBY - commentary - Cramer's Take) is the latest microeconomic tell to indicate that the consumer's not carrying the economy as it has for most of the last quarter century and certainly for the last five years since we left the Great Tech Depression of 2000 to 2002.

Let's dig into the Best Buy numbers a little bit to see if we can draw some investment and trading conclusions from the trends the company is confirming.

Same-Store Slide

First off, the top line was reported as growing 14%, and while that number is impressive, it includes 131 stores the company acquired with its China moves last year. Best Buy opened 99 new stores outright, which helps provide geographic growth and, thus, also boosts top-line results over the more telling same-store sales numbers. Those same-store numbers tell us exactly how much demand growth the consumer showed for Best Buy's leading-edge electronics product lines. And that number? Three percent.

Three percent is still growth, to be sure. But it's not exactly screaming, exciting growth. That 3% is down from 4.9% same-store sales growth last year. Since spending per household on electronic products is gaining relative to other discretionary items, the consumer's discretionary spending trend is worrisome.

We already knew that about the lower-income consumer, as Wal-Mart (WMT - commentary - Cramer's Take), Target (TGT - commentary - Cramer's Take) and others have warned repeatedly over the last few months. Now we're starting to see it trickle up into more consumer-spending trends.

Best Buy saw its gross margins take a 150-basis-point hit from last year. That's due in large part to slowing sales of big-ticket items relative to lower-margin, lower-priced items. We can safely assume that housing's downturn and the declining access to capital for such big-ticket purchases is trickling down to Best Buy now.

---

At the time of publication, the firm in which Willard is a partner was net long Riverbed Technology, New York Times and Google, although positions can change at any time and without notice.

Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.