Best Buy Co Inc (BBY) Shares Nosedive On Weak Outlook
After a strong rally over the past year, shares of Minnesota-headquartered electronics retailer Best Buy Co Inc (NYSE:BBY) shares have corrected more than 15% from 52-week highs. Company shares were down nearly 10% in early trading this Tuesday after it issued a lackluster long-term guidance. BBY has seen a strong revival under the leadership of Hubert Joly, who took the CEO reins in late-2012. Following two loss-making years on falling comparable sales and shrinking operating margins, BBY has recovered strongly as it exceeded earnings expectations in almost every quarter over the past three years. So while analysts expected a continued uptrend in earnings with nearly 23% EPS growth over the next three years, BBY today said it expects operating income of $1.9–$2.0 billion in FY’21, compared to $1.7 billion in FY’17 — a nearly 15% growth in four years. BBY had launched Renew Blue transformation in Nov’12 and the outcome has reflected in over 250% total shareholder returns over the past five years. The company has reduced costs by $1.4 billion during the same time period and expects to deliver $600 million more in annualized savings by 2021. “Our Renew Blue transformation was about improving the customer experience and fixing what was broken”, said Mr Joly. “Building on what we have accomplished, we are excited by the opportunities we have in this next chapter to grow the company by helping customers pursue their passions and enrich their lives with the help of technology, which is a much bigger idea and one that is rich with opportunities”, he added. Although investors seem concerned about the earnings growth, BBY’s strategy to seek sustained growth in top-line and cost improvement through creating efficiencies appears to be focused on customization, giving the consumer a wide range of offerings to choose for specific needs. The retailer aims to be a leading provider of smart home solutions, announcing the rollout of the Best Buy Smart Home in 450 stores by Oct’17. Additionally, the company sees favorable market dynamics for its Total Tech Support, developed by BBY’s subsidiary Geek Squad as a support for customer’s technology products even if they aren’t purchased at BBY. BBY is also experimenting with a service, Assured Living, for concerned children to remotely check the health and safety of aging parents. How this approach of solving the customers’ underlying needs plays remains to be seen. BBY’s recent track record, though, makes it look highly capable of capitalizing on these new opportunities.