Big-box electronic retailing giant Best Buy (NYE:BBY) closes its books on another difficult note on March 30. Its giant retail stores are becoming less relevant in an intensely competitive industry. However, Best Buy is generating impressively high cash flows and is likely to figure out how to stick around for many years to come.

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Full Year Recap
Best Buy's sales increased 1.9% to $50.7 billion. New stores, including internationally and from the accelerating roll out of smaller Best Buy Mobile stores, which reflect more of the size of RadioShack (NYSE:RSH), as opposed to Best Buy's massive big-box stores, helped offset negative same store sales growth of 1.7%. Best Buy still estimated it gained market share in the United States, but is having a difficult time competing with online rivals such as Amazon (Nasdaq:AMZN), which don't have to support expensive retail store operations and can help shoppers save on sales taxes that aren't charged online.

A goodwill impairment charge was the main contributor to a reported operating income decline of more than half to $1.1 billion. This threw net income into negative territory, or a loss of $1.2 billion (loss of $3.36 per diluted share). A better reflection of Best Buy's capital generating capabilities is through free cash flow, which improved markedly to $2.5 billion, or approximately $6.90 per diluted share. To know more about income statements, read Understanding The Income Statement.

Outlook and Valuation
In fiscal 2013, Best Buy expects flat sales between $50 billion and $51 billion as new store openings are expected to offset negative comps between 2 and 4%. It projects earnings growth between 3 and 12%, and core operating earnings between $3.50 and $3.80 per diluted share. Reported earnings will be much lower and are expected to be in a range of $2.85 and $3.25 per diluted share.

The Bottom Line
Market conditions are causing Best Buy to quickly rethink its traditional model of blanketing the world with its giant retail stores. The flat-panel digital television craze was also one that drove sales for many years and helped keep customers in a physical store. These days, music and movies have moved online to Apple's (Nasdaq:AAPL) iTunes and iPhone and iPad devices, and this is putting a hurting on traditional retailers such as Best Buy and Barnes & Noble (NYSE:BKS).

Yet despite the struggles, Best Buy is generating massive amounts of free cash flow that rivals such as Amazon may never experience. Its stores will likely always remain relevant to some degree, and management is working to emphasize smaller stores that sell mobile devices that are representing the current wave of popular tech gadgets. Its Geek Squad also drives lucrative service revenue that online competitors won't be able to match. But until Best Buy starts growing again, the stock is likely to languish. For additional reading, check out 5 Must-Have Metrics For Value Investors.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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