The Minneapolis-based electronics retailer’s stock has outperformed that of Walmart, Target and the S&P 500 during the last five and two years; only Best Buy has more than doubled in value during those time periods. The question is, can it continue, or will it begin to slide tomorrow morning when it reveals its second quarter financial results?
Best Buy is likely to report better-than-expected revenue growth given the economy has lifted most retailers’ results, and other healthy players including Target revealed better-than-expected sales numbers in recent weeks—in particular, in categories having to do with electronics.
Walmart, for example, said Aug. 16 that its second-quarter comp sales on electronics were the strongest in four years. Best Buy’s shares went up six percent since that announcement.
Meanwhile, industry analysis and research firm IDC on Aug. 15 said retail PC sales rose 14.5 percent during the second quarter. Computing and mobile phones constitute Best Buy’s largest segment and were 46 percent of its sales during the first quarter.
Best Buy may however tell the investment community once again that instead of generating sizzling earnings per share, it will continue to invest heavily in technology and omnichannel strategies, which are needed if it’s going to continue to compete well in years to come.
The question when will Best Buy unveil an actual growth plan like Target did almost two years ago, when it said it would sink $7 billion in creating all-new brands, updating its stores and more. Best Buy has done well controlling costs, improving processes and working more creatively with other brands. But its competitors are doing more. For example, Walmart is investing heavily in the tech arena.
Either way, it’s been a good run for investors who bought into the company during the last five years. Since the end of August in 2013, its stock outperformed the S&P 500, Walmart, Target, Kohls and other retailers by increasing more than 122 percent in value. The next closest gain was the S&P 500 at 75 percent. Target is up only 37 percent during that period; Walmart 31 percent. And just within the last 12 months, Best Buy shares have risen 48 percent. Target in comparison is up 32 percent as of the morning of Aug. 27.
UPDATE Aug. 28: As predicted, Best Buy reported stellar sales growth (sales grew 6.2 percent in the quarter compared with a e year earlier) and a better outlook, given the economy is lifting all retailers’ outlooks. But executives said the company’s operating profit would decline as it spends more on operations, technology and training. Meanwhile the question remains: where is this company’s growth strategy?