Upgraded Research Report on Best Buy - Analyst Blog

On April 4, 2014, we issued an updated research report on Best Buy Co., Inc. BBY following the company's fourth-quarter fiscal 2014 results.

Best Buy posted fourth-quarter adjusted earnings of $1.24 per share that surpassed the Zacks Consensus Estimate of $1.01 but was lower than $1.47 earned in the year-ago quarter. Total revenue fell 3.0% to $14,470 million and lagged the Zacks Consensus Estimate of $14,684 million.

For the first half of fiscal 2015, Best Buy expects revenues and comparable-store sales (comps) to be negative, similar to the trend in fourth-quarter fiscal 2014, owing to persistent weakness in the overall consumer electronics category.

With Best Buy remaining in the transitory phase, we expect profits to remain under pressure because of competitive pricing, lower sales, ongoing price investment, incremental Renew Blue SG&A investments and unfavorable impact from mobile warranty costs and new credit card agreement. Macroeconomic headwinds and increasing online competition, mainly from Amazon.com Inc. AMZN, are the other challenges bracing the company.

However, the remarkable progress by Best Buy's “Renew Blue” program in fiscal 2014 helped to offset the mediocre quarterly performance and management's cautious commentary.

The company achieved $765 million reduction in annualized costs, much ahead of the targeted $725 million from its North American business. Best Buy has now raised its target of cost reduction to $1 billion. Further, the company has extended its “buy online - ship from store” endeavors to more than 1,400 outlets. It has also re-launched loyalty and credit card programs and is diligently transforming its online customer database.

Apart from this, the company's online sales remained strong in the quarter and Best Buy remains focused to develop its e-Commerce/omnichannel capabilities going forward. The company, in order to gain incremental revenues, has partnered with vendors to increase the number of stores under the profitable Store-in-a Store strategy. It has also accomplished the first phase of its floor space optimization program.

Best Buy has unveiled over 1,400 "Samsung Experience Shops" within its stores. Taking its initiatives further, Best Buy, in its partnership with Microsoft Corporation (MSFT) has rolled out “Windows Store” across its 600 outlets.

Best Buy currently carries a Zacks Rank #3 (Hold).

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Another better-ranked retail stock worth investment includes Barnes & Noble, Inc. BKS, which sports a Zacks Rank#1 (Strong Buy).