Consumer Electronics

Best Buy Up 50% in Last Year to All-Time High

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Consumer electronics retailer Best Buy Co. Inc. (NYSE: BBY) traded at an all-time high Wednesday morning, and the company’s stock has gained slightly more than 50% over the past 12 months.

After trading slightly lower for about a year, shares gathered some steam last August when it reported better-than-expected results for the company’s second fiscal quarter. Enterprise level same-store sales rose 0.8% year over year in the quarter after rising by 3.8% in the prior year. Online comparable sales rose nearly 24%, and domestic online sales of $835 million in the quarter accounted for 10.6% of revenue.

Shares jumped again in November when the company reported better-than-expected results for its third fiscal quarter. U.S. same-store sales rose 1.8% and domestic online revenues rose another 24% and contributed 10.8% to enterprise revenues. Fourth-quarter U.S. same-store sales declined nearly 1%, but online sales improved by 17.5% and online sales accounted for 18.6% of total revenues.

The story for Best Buy has been maximizing multichannel opportunities, providing more services and speeding up growth in Canada and Mexico. The company got an unexpected boost when smaller competitor hhgregg filed for bankruptcy protection earlier this year.

The benefit for Best Buy, if one exists, comes if the company can capture a significant share of hhgregg’s roughly $2 billion in annual sales. Most of those sales (about 60%) came from appliances, an area that currently contributes about 9% of Best Buy’s annual sales.

If Best Buy can capture a third of hhgregg’s appliance sales, that would add about $400 million to the company’s annual revenues. Best Buy was hhgregg’s main competitor in the bankrupt chain’s region, so its presence is already well established. Once the hhgregg inventory is cleared out and prices return to a more normal level, Best Buy could begin to see a revenue boost.

The even better news for the company going forward is the weakness in competitors like Sears and J.C. Penney, both also big sellers of appliances. Sears has already sold off its Craftsman brand tool business and is looking for a buyer or buyers for both its Kenmore appliances and Diehard auto parts.

Could Best Buy benefit from buying the Kenmore brand? Because Kenmore appliances are made by manufacturers like Maytag, Kitchen-Aid and others already doing business with Best Buy, competing with its own suppliers may not be a terribly wise decision. Still, purchasing Kenmore is not entirely out of the question.

The bad news for Best Buy remains Inc. (NASDAQ: AMZN), particularly in consumer electronics sales. Best Buy’s revenue growth over the past nine months has been down to online sales and even though sales are growing, Amazon could add more pressure on margins than Best Buy could stand. Betting that a company can go head-to-head with Amazon is an almost certain loser.

Best Buy shares traded up about 2.6% shortly after noon Thursday, at $50.67, after posting an all-time high of $50.87 earlier in the morning. The stock’s 52-week low is $28.76, and the 12-month consensus price target is $47.25.

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