Electronics retailing giant Best Buy (NYSE:BBY) continues to face sales headwinds at its U.S. store base. The issue is whether this is related to flagging popularity of previously must-have items, or this is due to a more serious matter that consumers are increasingly heading online to purchase electronics. For now, the struggles appear to be related to the former, which means the shares are worth a close look.
ARTICLE: Analyzing Retail Stocks

Fourth Quarter Recap
Sales fell 1.8% to $16.3 billion, as the opening of new stores was not enough to offset a same-store sales decline of 4.6%. Domestic sales made up the vast majority of the total top line at 74.2% and fell 4% as comps dropped 5.5%. Television, entertainment hardware and software, and mobile computing trends were all weak as flat-panel TV, DVD, and notebook computer sales all struggled. However, smart phone sales from the likes of Apple (Nasdaq:AAPL) iPhones and phones that run off Google's (Nasdaq:GOOG) popular Android operating system proved popular. Online sales also jumped 11%.

Best Buy detailed that it gained market share from the second quarter but lost share versus last year's third quarter as firms such as pure-play rival hhgregg (NYSE:HGG) and big-box retailers including Wal-Mart (NYSE:WMT) were heavy on promotions to drive sales (in Best Buy's view). Gross profits did improve during the quarter but SG&A spending increased and a restructuring charge sent operating income down by 21.7% to $1 billion, or 6.2% of sales. Lower income taxes tempered the net income decline to 16.4% as earnings fell to $651 million, or $1.62 per diluted share.

Full-Year Review
Sales for the full year increased modestly, rising 1.2% to $50.3 billion. Higher SG&A and the restructuring charge again caused operating income to fall, as it dropped 5.4% to $2.1 billion. Lower taxes again helped reduce the bottom-line decline, as earnings fell 3% to $1.3 billion, or $3.08 per diluted share. The company didn't provide cash flow information during the earnings release.

Outlook
For the coming year, Best Buy expects sales to increase between 1 and 4% and earnings in a range of $3.28 to $3.53 for year-over-year growth between 4.5% and 12.4%.

The Bottom Line
Best Buy's stock hit a 52-week low after the earnings report. The company had an impressive run on the back of a steady stream of new electronics products, including flat-panel televisions, high definition DVD players, and surprising popularity for DVD movies and videos. It appears that these products have reached a saturation point and 3-D TVs and high-def DVDs have so far failed to take their place.

Concerns are abound that consumers are increasingly heading online to purchase electronics. This represents a long-term threat to Best Buy and other retailers of electronics, but for the now, it is hard to prove as the current sales struggles look to be related to declining popularity of previous sales drivers. At a forward P/E of less than 10, the shares could be worth a closer look as the company still has solid overseas growth prospects and fears over an online migration are likely overblown. (For related reading, please see: Choosing The Winners In The Click-And-Mortar Game.)

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Tickers in this Article: BBY, HGG, AAPL, GOOG, WMT

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