Best Buy Co., Inc. (NYSE:BBY)’s stock price plummeted 28.5% yesterday after traders found out that same-store sales (comps) had fallen by 0.9% during the holiday season (the nine week period ending January 4) instead of growing 2.0% as anticipated. The stock closed at $26.88, just 40% of its 52-week high, reports Johanna Bennett for Barron’s.
Plenty of warning for Best Buy’s weak holiday season
While some people are claiming shock, there has actually been good reason to expect Best Buy to take a hit. First, plenty of analysts have already warned that this was going to be a tough holiday season, and that many retailers were planning heavy discounts and promotions to increase traffic. Even if Best Buy Co., Inc. (NYSE:BBY) offered fantastic deals it can only help so much – when everyone is slashing prices, your sales don’t have quite the same draw, and that’s assuming people don’t just opt out of the lines and chaos and order something online.
Short sellers knew there was blood in the water almost a month ago, and J.C. Penney Company, Inc. (NYSE:JCP)’s already infamous decision to release a monthly update with practically no information in it should have been a sign that the whole sector may have had a lackluster Christmas. Even if you thought Best Buy Co., Inc. (NYSE:BBY) was going to be the stand-out brick-and-mortar retailer who came out on top, there should have been some nagging doubt that all the signs of trouble might really mean something.
Best Buy still has to increase sales and margins
Even stabilizing comps wouldn’t have been enough, or shouldn’t have been enough, to give investors much faith in the company. Best Buy has been facing falling margins for some time now, and everything they did during the holiday season exacerbated the problem. The longer opening hours, lower prices, and increased advertising budget all took a bite out of earnings, and apparently they didn’t even get people into the store.
Best Buy Co., Inc. (NYSE:BBY)’s management team has impressed investors with its ability to cut costs, and you can expect more discussion of efficiency and restructuring when it’s time to put a positive spin on the fourth quarter. Closing down the least profitable stores may help, but if investors have the feeling that Best Buy doesn’t know how to start growing again, it will have a hard time getting its stock price to recover.