Analyst Cautious on Eve of Best Buy Financials

14 Sep, 2009 By: Erik Gruenwedel

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Ongoing recessionary worries coupled by a weekend trip to a local Wal-Mart prompted Pali Research analyst Stacey Widlitz Sept. 14 to remain on the fence regarding pending financial results from Best Buy Co.

Widlitz said she expects the Minneapolis-based No. 1 consumer electronics retail chain to post negative “high single digit” same-store sales in the United States, citing 13.1% and 14.6% declines, respectively, in overall CE sales in June and July.

In its Sept. 6 newspaper circular, Best Buy offered discounts on 33 HDTV models, including 27 on the more expensive screen sizes above 37 inches.

“What is most telling is not only the number of discounted televisions, but also the magnitude of some of the discounts, which in some cases approached 40%,” Widlitz wrote in a note.

The analyst said she remained concerned that Best Buy was sacrificing margins (by throwing in Blu-ray players and related CE products) to move HDTV units, especially on higher ticket prices.

Widlitz also visited the CE department of a Wal-Mart in the Dallas area and found a “most impressive” product selection and accompanying customer service.

Since the demise of No. 2 CE retailer Circuit City in March, Wal-Mart has aggressively refurbished its stores’ CE departments, upping available brands, discounts and customer service in an effort to capture $11 billion in sales up for grabs, according to Widlitz.

Wal-Mart is one of the few national retail chains that has seen business increase during the recession.

“Electronics was as well done as we have seen in any Wal-Mart,” she wrote about the Dallas store. “Signage and discounts were communicated clearly.”

Best Buy, in the most recent quarter, reported a 15% decline in earnings to $153 million on a 12% increase in total revenue of more than $10 billion.

The chain reports second-quarter (ended Aug. 31) earnings Sept. 15.

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