Analyzing Best Buy’s Sales Growth Initiatives after 4Q16 Earnings
Best Buy Beat Estimates in Fiscal 4Q16, but Not the Best Outlook
Same-store sales
Best Buy’s (BBY) same-store sales fell 1.7% in 4Q16, which ended January 30, 2016. Respective 2.7% and 12.1% rises in the 4Q16 same-store sales for the Consumer Electronics and Appliances categories were offset by a 6.8% decline in the Computing and Mobile Phones category. Computing and Mobile Phones is Best Buy’s largest category. It accounted for 43% of the 4Q16 revenue mix.
Same-store sales at Conn’s (CONN) and Aaron’s (AAN) also fell 1.7% and 3.4%, respectively, in the comparable fourth quarter. GameStop (GME) reported a 4.4% rise in its holiday same-store sales.
Growth initiatives
In the 4Q16 conference call, Hubert Joly, Best Buy’s chair and chief executive officer, discussed a series of initiatives that the company is undertaking to improve its sales. Best Buy’s growth initiatives include enhancing its merchandise offerings. The company plans to add five Magnolia Design Center stores-within-a-store, bringing the total count to 84 stores by the end of fiscal 2017.
The company also plans to grow its market share in appliances by adding 27 Pacific Kitchen & Home stores-within-a-store. This move will bring the total store count for these stores to 203. Best Buy also plans to enhance its assortment in the connected home area by adding emerging categories like security, lighting, and video monitoring. The company plans to expand its in-store presentation and leverage its leading position in routers and networking equipment—which are crucial for the connected home category. The iShares U.S. Consumer Services ETF (IYC) has 0.3% exposure to Best Buy.
Best Buy has also been building partnerships with key vendors to drive traffic and enhance consumers’ shopping experience. For instance, the company had 630 Samsung (SSNLF)(005930.KS) and 380 Sony (SNE) stores-within-a-store as of October 31, 2015, in the home theater category. In its 3Q16 quarterly report, the company stated that it has updated over 130 of its Apple (AAPL) stores-within-a-store, so it has 500 latest-generation Apple stores-within-a-store.
Best Buy’s other strategic priority is to reduce costs and enhance efficiency. We’ll discuss this initiative in the next part of this series.
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