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Best Buy Co., Inc. Message Board

  • supernexus1 supernexus1 Jan 17, 2013 1:08 PM Flag

    Everyone forget Federated, CompUSA, EggHead, Circuit City, and The Good Guys?

    First, let me state that I would like to see traditional brick and mortar stores stay around. I enjoy going in, kicking the tires, maybe seeing a new item I was unaware of, and seeing if the staff can provide some additional knowledge regarding a product. However, looking at Best Buy's recent and past financials and knowing its tremendous downside hurdles, I still cannot imagine the founder and other investors pooling good money to pile on the bad. Let me explain why?

    1. Decreasing sales in all areas except online. Yes, online went up, but does not provide a large amount of Best Buys profits and not enough to offset their store losses.

    2. Significant decrease in cash flow (this one is huge).

    3. Higher fixed employee, structure, and training costs. Amazon does not need to train their employees on every product they sell. There turnover is also considerably lower then Best Buy's so Best Buy needs to spend those training dollars over and over.

    4. Something that has not been brought up in any analysis that I have seen, but is a HUGE cost to Best Buy is a combination of both customer and employee theft. I know a former Best Buy store manager and he said their theft rate in the few stores he managed (at different times) was "outrageous" with the employees contributing a significant portion to the problem. Given, he has not worked there for a few years, so maybe this has improved and he did say that most employees at BBY are good, honest, hard working people. However, poor laws in most states for what is considered petty theft leaves little downside for large theft rings and individuals to target brick and mortar stores like Best Buy. Online stores that have centralized warehouses, modern robotics, and automated inventory control systems like Amazon have significantly lower theft rates from their employees and no customers walking in and then walking out without paying.

    5. Advertising expenses. Who do you think pays more for advertising their products...Best Buy running weekly ads in papers, ads on TV, occasional radio ads, as well as online advertising or a company like Amazon that occassionally runs a TV ad with the rest showing up in search results or customers going straight to their online store from a smart phone app?

    6. We are all aware of the show rooming situation. Put best, let the brick and mortar stores pay for the big buildings, fancy advertising, employee training, displays, and theft so customers can walk in, ask questions, see the items they wish to purchase, and then do a search, many while in the store, to complete it online with another vendor.

    Here is where I see Best Buy in three years: Many of their stores are closed keeping open only the profitable stores, more sales online (Egghead did something like this), and a significant drop in valuation and profits.

    If I am Schultz I am finding a way to release the value of my current shares, maybe suggesting I am going to bid for the company and sell as many shares as I can while the stock goes up and then invest in a company with growing profits, margins, and cash flows in an emerging or growing market segment. Or, I wait a little longer, let my offer expire, watch shares plunge (yes, his shares as well), see their debt cost go up as their cash flow declines, and then sweep in with a much lower offer when BBY becomes desperate.

    Mr. Schultz is a smart man and a businessman first. Maybe he has become too emotionally attached to the company he founded to see that buying it at a premium and piling on additional debt, like often happens with leveraged buyouts, will not make Best Buy more profitable or him any richer.

    Bottom line, many people are long, hoping for a pop if a buyout occurs. If it does not, the stock tanks. The shorts are hoping a buyout does not occur and they make money when the stock tanks. If Schultz and his partners simply ask for more time to consider the purchase, the stock still tanks. The stock should not be held at this point as a long term investment as it has become a spec stock and is not being bought or sold based on current earnings, trends, or cash flow. If I owned the stock now at a profit I would take some or all off the table instead of risking losing all my gains and then taking a loss.

    Sentiment: Strong Sell

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