1. Best Buy
> Forecast store closings: 200 to 250
> Number of U.S. stores:1,056
> One-year stock performance: -36.8%
The holiday season was rough for Best Buy Co. Inc. (NYSE: BBY). Same-store sales declined by 1.4% year-over-year, with international stores posting a 6.4% decline while U.S. same-store sales were flat. Companywide, the electronics retailer reported that holiday revenue had declined to $12.8 billion from $12.9 billion the year before. In the most recent completed quarter, during which same-store sales declined 4.3%, the company reported a loss of $0.04 per share. Best Buy has been plagued by customers “showrooming” — looking at products in the store and then purchasing them online — in recent years. Speculation persists that former chairman and founder Richard Schulze may buy out the company.
Comment from Best Buy on February 3, and 24/7 Wall St. reaction:
Best Buy comment:
This so called forecast has no basis in fact and runs contrary to what we have said publicly about our US stores. We will close stores from time to time as all retail chains do but the vast majority of our stores are profitable and our intention is to make them more so, not close them
This is the sort of disingenuous statement that troubled companies often make to the public and the press. In the case of Best Buy, management wants the outside world to believe that its forecasting skills are better than those other companies which have suffered a large number of executive missteps. Best Buy closed stores “from time to time” over the last ten months. They included at least 50 in the U.S. and 15 in Canada. Management was unlikely to have predicted this scope a year before the announcement was made
Best Buy’s own SEC filings indicate that it faces hurdles which could cause it to “downsize” substantially. Among these are statements from its 10-K: “We must have sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under credit facilities and other debt financings.”
Another indication how expense and financial troubles would harm Best Buy’s ability to keep its current store base comes from credit research firm Fitch: “Fitch believes that Best Buy faces headwinds around market share that are having an adverse impact on comparable store sales, profitability, and the company’s credit profile. (our) Negative Outlook reflects (i) the potential for an accelerating shift in consumer electronics sales to the online channel and (ii) Fitch’s skepticism that the strategic plan laid out by new management, which shed some light on cost cutting programs and initiatives to reinvigorate sales, will achieve the targeted improvements and curb market share losses and profitability declines. The ratings continue to reflect Best Buy’s strong liquidity position and free cash flow (FCF) generation. While Best Buy has dominant market shares in many of its categories, Fitch believes that it will be difficult and expensive for the company to retain its current market share as price conscious consumers gravitate toward the lowest prices within the online and brick and mortar channels. Although Best Buy has implemented a company-wide price matching policy for the holidays, Fitch expects it will put a burden on gross margins near term without a meaningful uplift in overall sales as it will remain challenging for Best Buy to change its price perception among consumers.”
In short, markets have reason to be highly skeptical of any positive comments or forecasts that Best Buy management makes about its future, and markets have reason to put stock in educated comments from other sources which follow Best Buy closely.
2. Barnes & Noble
> Forecast store closings: 190 to 240, per company comments
> Number of U.S. stores: 689
> One-year stock performance: 8.95%
The move by customers away from print books toward digital books has hurt Barnes & Noble Inc. (NYSE: BKS). Same-store sales during the nine-week holiday season fell by 8.2% year-over-year. The bookseller has tried to offset the declines in physical book sales with its Nook e-book reader device, but sales of that device fell 13% compared to the previous year. The company already has begun cutting down the number of its stores in the past several years. In a recent interview with the Wall Street Journal, the head of the retail group at Barnes & Noble said he expected the company to have just 450 to 500 retail stores in 10 years.
2. Sears Holding Corp.
> Forecast store closings: Kmart 175 to 225, Sears 100 to 125
> Number of U.S. stores: 2,118
> One-year stock performance: 8.8%
Both Sears and Kmart have been going down the tubes for a long-time, steadily losing their middle-income shoppers to retailers such as Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT). Sears Holdings Corp.’s (NASDAQ: SHLD) same-store sales have declined for six years. In the most recent year, same-store sales at the namesake franchise fell by 1.6% and at Kmart by 3.7%, compared to the year-ago period. The company is already in the process of downsizing its brick-and-mortar presence. In 2012, Sears announced it was shutting 172 stores. CEO Lou D’Ambrosio is leaving the company in February, to be replaced by chairman and hedge-fund manager Edward Lampert. Lampert has minimal operating experience in retail management.
4. J.C. Penney
> Forecast store closings: 300 to 350
> Number of U.S. stores: 1,100
> One-year stock performance: -53.6%
J.C. Penney has gone through a rough stretch recently. In the most recent quarter, same-store sales fell by 26.1% compared to the year-ago period. Even Internet sales, which are increasing significantly across the retail sector, have taken a turn for the worst, falling 37.3% in the third quarter, compared to the prior year. J.C. Penney sales have taken a turn for the worst since former Apple Inc. (NASDAQ: AAPL) retail chief Ron Johnson took the helm at the company. Johnson’s plan, among others, has been to wean customers off of heavy discounting and simply give customers low prices. However, retail strategists and analysts have argued that Johnson’s plans have created confusion among customers and has been a further setback to any potential turnaround.