Handhelds, Holiday Season to Drive Best Buy US Revenues
Best Buy’s (NYSE:BBY) revenue per square foot (RPSF) from US stores has started to pick up after declining in the past few years following a slowdown in comparable store sales in 2008 in light of a weak economy and lower-than-average performance of new stores opened each year.
Best Buy, which competes with leading retailers like Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Radioshack (NYSE:RSH), is likely to benefit from the closure of its closest competitor Circuit City, giving the company an opportunity to grab market share.
Its RPSF declined from around $953 in 2006 to around $905 in 2008. [1] While we expect the RPSF to reach $1,060 by 2016, the Trefis community projects a higher level of $1,180, translating to an upside of 8% to our price estimate for Best Buy’s stock.
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We currently have a Trefis price estimate of $40.88 for Best Buy’s stock, about 6% below the current market price of $43.54.
TV Sales Down, Handhelds Up
Best Buy reported improving profits in the last two quarters led by a shift in sales mix from TVs and PCs to smartphones, e-readers and tablets. We expect this trend to continue aided by growth in e-commerce and stabilizing customer traffic.
In Q2 2010, Best Buy acknowledged declining TV sales driven primarily by weaker overall consumer demand in the TV industry as well as the consumer shift to online videos. This resulted in a low double digit decline in comparable store sales (sales from stores in operation for more than 14 months). [2]
In an earlier article, we noted how Best Buy reported improving gross margins in the Q2 mostly driven by significant growth in its mobile business, which posted the highest comparable store sales among all of Best Buy’s product categories. A combined strategy of good customer service, a broad choice of wireless plans and the most popular smartphones has proved beneficial for Best Buy.
In order to boost sales in the upcoming holiday season, Best Buy is prominently showcasing devices like Apple’s (NASDAQ:AAPL) iPad and Amazon’s (NASDAQ:AMZN) Kindle e-readers as well as video game consoles and accessories like Microsoft’s Xbox 360 and Sony’s PS3 in its stores. [3].
These factors coupled with growth in e-commerce will give a push to Best Buy’s RPSF. The company’s online revenues increased 16% in Q2 versus a year ago.
The Trefis community predicts the RPSF for Best Buy’s US stores to increase from around $977 in 2010 to $1,181 by 2016, compared to the Trefis estimate of an increase from $913 to around $1,060 during the same period. The member estimates imply an upside of 8% to the Trefis price estimate for Best Buy’s stock.
Our complete analysis for Best Buy’s stock is here.
Notes:- Calculated as (Total number of stores) x (Revenue per store)/(Total square footage). Best Buy reports Total Number of Stores, Revenue per Store, and Total Square Footage in its annual SEC filings. [↩]
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