This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: Best Buy 'Hopes' for Hot Products

By: Herb Greenberg | 08/27/14 - 11:44 AM EDT

Stocks in this article: BBYAMZNHGG

This article appeared at 10:12 a.m. EDT on RealMoney Aug. 26.

SAN DIEGO (RealMoney) -- Listening to the Best Buy (BBY) call and reading though their earnings release, I just keep thinking to myself: Something's gotta give.

The company's tone on the call was extremely optimistic and, notably, not defensive.

But the challenges appear so obvious and, more troubling, they are tied to a hot product cycle. Chief Financial Officer Sharon McCollam all but acknowledged that when she was asked about her forecast for negative single-digit comparable-store sales for the fourth quarter.

Responding to one analyst, she said: "The fact that the innovation in mobile has been pretty soft this year was different than we had hoped." Had hoped!

That's it, in a nutshell, with this important overlay: Competition from Amazon (AMZN) , and Best Buy's own shift to online, continues to drive margins lower.

Best Buy itself says that traffic to bricks-and-mortar continues to decline as consumers shift online. Yet, online comparable-store sales, up an impressive 22%, grew at a lower rate vs. the 29% rise seen in the prior quarter, and the 25% the quarter before that. Still, the 22% read was well above figures recorded a year earlier.

On the bright side: Best Buy is rapidly adapting to the current environment, notably in its ship-from-the-store service. As one industry friend notes:

"Remember, they are still doing almost $40 billion a year in a 40,000 square-foot box -- or right at $1,000 per square foot. And that is with a lot of dead space in the middle of the Store. Hhgregg (HGG) is doing under $10 billion a year in a 30,000 square-foot box -- that is trouble."

Less bright: Margins continue to fall, as do costs, as the company struggles to beat Amazon at its own game. In the end, it's about costs. If the company can get the costs right, it has a chance. And one good product cycle will make Wall Street forget, at least temporarily, how precarious Best Buy's high-wire act really is.

But hoping for hot products isn't a good model. It's totally out of the company's control. Yeah, something's gotta give -- it's just unclear what that will be, and when it will happen.

At the time of publication, Greenberg had no positions in stocks mentioned but positions can change at any time.

Follow @herbgreenberg.

Subscribe to RealityCheck, Herb On TheStreet Blog

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Herb's Tweets

Brokerage Partners

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Breakout Stocks

Bryan Ashenberg, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Options Profits

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs