Outlook: Best Buy Faces Holiday Headwinds

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Best Buy (NYSE:BBY) is expected to report a holiday comp on Friday, January 10, before market open. We expect a difficult holiday for Best Buy as the company appears determined to deliver a positive comp and seems willing to sacrificing margins in order to do so. We observed deep discounting during an extremely competitive Black Friday weekend, and promotions have continued.

We expect Best Buy to deliver domestic same store sales growth of close to our +1.5 percent estimate from new console launches, promotional activity and positive comps in entertainment, appliances, and mobile phone categories. Best Buy commentary and our industry contacts reinforce our belief that Best Buy received fewer than 10 percent of next generation consoles shipped, below its historical 15 percent share. We expect the launches to contribute $200 million in sales (around 1.6 percent contribution to the comp), so an overall comp below this figure suggests share losses elsewhere. We continue to expect negative international comps.

We think share of accessories will continue to shift to Amazon (NASDAQ:AMZN) this holiday, particularly as Amazon Prime membership continues to grow. We estimate domestic Prime members total 15-17 million, and believe that Prime membership shifts consumer behavior to use Amazon as a convenience store; convenience purchases like batteries, printer cartridges, phone chargers, cords, and cases are likely to continue their inevitable migration online this holiday and beyond.

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