Best Buy (BBY) CEO Hubert Joly turned his stores into the most fabulous showrooms in consumer electronics. Now he just has to prove the chain can profit from the parade of customers.
For the record, the company reported non-GAAP earnings per shares of 18-cents vs 12-cent estimates. Shares are getting beat up a little bit on soft comparable store sales growth of 0.3% and cautious comments regarding the pricing environment in Q4. Neither of those actually matter, but with shares up more than 200% year to date, taking profits is the better part of valor in terms of protecting profits.
Related: 4 Reasons Best Buy is Winning Back Consumers
There isn't a human being on earth who should be surprised by competitive pricing in Q4. Walmart (WMT), Target (TGT), and every other retailer on earth have spent tens of millions vowing not to be undersold during the holiday shopping season. Of course Best Buy is matching. As for comps, once traders get around to reading the actual release they'll see that domestic comps were up 1.7%, solid performance given the disruption of the floor-space modifications done over the quarter as the chain transforms itself from museum to retail carnival.
The Real Question for Best Buy's Fourth Quarter: Cashing in on Customer Traffic
The release of Sony's (SNE) PS4 and Microsoft's (MSFT) Xbox One is going to translate into billions of dollars for business over the holidays. The PS4 has done about a billion in sales already and it hasn't even been out for a full week. The catch is that the products have almost no net margin for the retailers. The PS4 costs an estimates $385 to build and retails for $400. No one is going to get rich selling the boxes for a couple years.
Selling consoles is going to be a given for Best Buy. Selling high-margin add-on products is not. The only thing that matters for long-term investors is whether or not the new Best Buy store model will lead to better overall sales. If customers come in for video game consoles and don't buy anything else, Best Buy will have lost. Momentum will wane and the stock price drift back from whence it came.
Related: How Showrooming Can Save Best Buy
The challenge for Best Buy is going to be getting customers to come in for the consoles and leave with TVs, cables, games, and maybe even a popcorn maker. Hubert Joly has built a big gorgeous tent for the congregation of devoted consumers to come worship commercialism. Now he just needs to get them to fill the donation basket with high margin goodies that drop to the bottom line for Best Buy.
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