Best Buy's New Environment

By Sham Gad | December 17, 2009 AAA

Electronics retailer Best Buy's (NYSE:BBY) third-quarter earnings announcement this week clearly shows how the company is enjoying a bigger piece of the electronics market due to the absence of a major competitor. The company reported earnings of 53 cents per share compared with 13 cents in the year-ago quarter. Best Buy has also stood out for being a quality electronics retailer despite additional competitive pressures from Wal-Mart (NYSE:WMT), which has expanded its electronic department.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Free Market Share
Many investors might remember when Best Buy was competing with another well known electronics retailer, Circuit City. Unfortunately the retail space wasn't big enough for two giant electronic stores and Circuit City, the much smaller competitor, had to file bankruptcy. Considering that many Circuit City Stores were near Best Buy, the elimination of such a competitor was an instant boon for the company. In the past year, Best Buy reported an increase in market share of 2.3%. Among other things, the company cited a significant change in the competitive environment as a primary reason for the market share increase.

Looking Ahead
Best Buy continues to be a formidable electronics retailer despite competition from Wal-Mart, Amazon (Nasdaq:AMZN), hhGreg (NYSE:HGG) and to a much lesser extent, RadioShack (NYSE:RSH). There seems to be room for Best Buy to grow and prosper over the long-run despite Wal-Mart. Best-Buy's prices are competitive, the stores are very shopper friendly, and it simply offers a wider selection than everywhere else. Still, going forward, the retail environment will continue to remain difficult. Merchandise inventory was up by nearly 10% in the quarter, not what you want to see in a electronics retailer where products can become obsolete rather quickly. And considering Best Buy's shares have nearly doubled this year, the future share performance may be muted unless the company can continue to deliver strong profit growth. (For related reading, check out The Stages Of Industry Growth.)

Bottom Line
Overall, the quarter was solid for Best Buy, and if the company can continue to execute on its growth plans, it should do well. However, consumers continue to watch their wallets and that likely means a tougher retail environment for some time to come. (For related reading, check out Choosing The Winners In The Click-And-Mortar Game.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Amazon.com, Inc.'s Recent Bounce: A Dead Cat Bounce Or Something Longer Lasting?
    Stock Analysis

    Amazon.com, Inc.'s Recent Bounce: A Dead Cat Bounce Or Something Longer Lasting?

  2. Amazon Inc.'s Recent Bounce: A Dead Cat Bounce Or Something Longer Lasting?
    Stock Analysis

    Amazon Inc.'s Recent Bounce: A Dead Cat Bounce Or Something Longer Lasting?

  3. Q2 Earnings Season in Rearview Mirror - Earnings Trends
    Stock Analysis

    Q2 Earnings Season in Rearview Mirror - Earnings Trends

  4. Bear of the Day: hhgregg (HGG) - Bear of the Day
    Stock Analysis

    Bear of the Day: hhgregg (HGG) - Bear of the Day

  5. Why I'm Shorting Amazon Today
    Investing

    Why I'm Shorting Amazon Today

Trading Center