Best Buy Looking to Offset Big-Box Slowdown with Expansion of Mobile Stores

Best Buy’s (NYSE:BBY) recently released its fiscal Q4 2011 earnings and it appears that pressure from big names like Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN) and Costco (NASDAQ:COST), as well as other specialty retailers like GameStop (NYSE:GME) and Radio Shack (NYSE:RSH), is continuing to haunt the company’s sales numbers. Fortunately for investors, Best Buy is taking a couple major strategic steps to save itself.

Our price estimate for Best Buy’s stock stands at $39.84, a roughly 35% premium to market price.

Slow Down in Big Box Stores

Best Buy’s comparable store sales, and consequently revenue per square foot, for its big-box format U.S. stores has witnessed a steady decline in the recent past. Revenue per square foot for these stores has fallen from about $953 in 2006 to about $885 in 2010. Recent struggles are due to a rough economic environment, slow TV sales and competitive pressures.

As a result, management has determined that it may not be in the company’s best interest to continue to expand its big-box stores at historical rates. After opening about 30 new stores in 2010, Best Buy plans to open just 6 to 8 new stores in 2011. You can examine how various forecasts for Best Buy’s U.S. store count affect its stock value by dragging the trend line in the interactive chart above.

Growth in Small Box Mobile Stores

During Best Buy’s earnings call in March, management commented:

“Best Buy Mobile has been executing very well and we’ve gained share. But despite that strong showing, our share is still only around 6%. We’re seeing solid momentum in this business. We’re growing the footprint of mobile in our big-box stores to add additional accessories.” ^[1]

Growing electronics sales at Best Buy Mobile stores is being driven by demand for smartphone and tablets. Revenue per square foot at Best Buy Mobile stores has been on a growth track for the past few years and the addition of new devices and accessories could carry this trend forward.

Best Buy management also commented:

“… as we announced last month, we’re planning to open an additional 150 mobile standalone stores, taking the count to a total of approximately 325 stores by the end of this year.” ^[1]

This indicates that Best Buy is looking to offset falling comparable store sales by expanding the footprint of its popular Best Buy Mobile stores. But to what extent can these stores contribute to stock upside? You can drag the trend line in the modifiable chart above to see how various forecasts for Best Buy Mobile store totals could affect the company’s stock value.

See our complete analysis of Best Buy stock here

1. Best Buy earnings transcript, Q4 FY 2011 [↩] [↩]