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Best Buy bludgeoned; turnaround hits a ‘speed bump’


It was a return to reality for Best Buy (BBY). A stock that has ran up over 150% in the past year saw nearly a third of its value lopped off this morning after the discount retailer revealed disappointing sales for the all-important holiday period. The world’s largest consumer electronics chain reported same-store sales were down 0.9 percent in the U.S., and total revenue fell about 2.6% to $11.45 billion. Although a drop of less than 1% wasn’t as bad as the same period last year, Wall Street is punishing the company, perhaps looking for a reason to take profits on one of 2013’s big winners.

However, one holiday period does not a company’s future make. As Jeff Macke and Matt Nesto discuss in the attached clip, all is not lost for the retailer. “In terms of the fundamental miss, it’s not that huge of a deal,” Macke surmises, meaning we need to look at Best Buy's results alongside the broader retail environment overall. “It’s been a really tough time for these specialty retailers.”

With Best Buy stock at a near 7-month low, investors are curious whether this dip would make the stock a nice buying opportunity, or a reason to stay away and see if the worst is yet to come. “The stock’s move is an overreaction, but it doesn’t make it a buy,” Macke advises, making it clear the trend this season has been “specialty retail is where love goes to die.”

The heavy discounting in the space and online retailers capturing mindspace with consumers is hurting a Best Buy turnaround plan that until recently was getting positive reviews. However, as Macke astutely points out, “investing in price competitiveness is not necessarily a recipe for [higher] stock price action.” 

Does this mean Best Buy’s makeover process, instituted by current CEO Hubert Joly, has hit the proverbial wall? As a company, both Macke and Nesto agree the retailer is in much better shape, both operationally and competitively (Best Buy finally decided to price match Amazon.com AMZN last year), but that one must not forget Best Buy is essentially a discount retailer operating in a very price-driven, competitor-rich market.