Can Best Buy’s Growth Initiatives Help Its Share Price Recover?

Best Buy Manages to Get Better in 1Q16

(Continued from Prior Part)

Share price in 2015

As of May 22, Best Buy’s (BBY) share price had declined by 11.5% to $34.33, compared with the beginning of 2015. Best Buy’s stock has underperformed peers like GameStop (GME), Aaron’s (AAN), and Target (TGT), which appreciated by 20.7%, 17.2%, and 5.3%, respectively. Best Buy’s share price increased by 3.9% on May 21, as the company exceeded analysts’ sales and earnings estimates.

Best Buy’s stock performance also lags the Consumer Discretionary SPDR ETF (XLY) and the S&P 500 Index, which appreciated by 7.4% and 3.3%, respectively, over the same period. Best Buy makes up ~0.4% and 0.1% of the portfolio holdings of XLY and the SPDR S&P 500 ETF (SPY), respectively.

Best Buy is currently trading at a forward price earnings (or PE) multiple of 13.2x, down 10.0% since the beginning of 2015.

Although Best Buy’s share price is down in 2015, it has appreciated significantly since late 2012, due to the company’s Renew Blue restructuring productivity plans, investment in its online channel, and the sale of its unprofitable businesses.

Growth initiatives

Best Buy’s share price might be positively impacted by its growth initiatives that aim to drive the company’s revenue and margins. The company’s growth initiatives include a focus on high-margin products, expanding merchandise selections, and continued investment in online business.

In fiscal 2016, the company plans to open ~20 additional Magnolia Design Center stores-within-a-store and ~60 additional Pacific Kitchen & Home stores-within-a-store. In 1Q16, Best Buy opened 11 of the planned Pacific Kitchen & Home locations.

Best Buy is focused on strengthening its relationship with its suppliers. In fiscal 2015, the company’s top five suppliers—Apple (AAPL), Samsung (SSNLF), Hewlett-Packard (HPQ), Sony (SNE), and LG Electronics (LGEAF)—accounted for ~47.0% of the total merchandise purchased.

The company continually works with its key suppliers to enhance its merchandise assortment. Best Buy locations already have Samsung Experience Shops within its stores. In an effort to improve the customer shopping experience, Best Buy recently announced that it will support Apple Pay service in its retail stores in the US.

For more updates and earnings analysis, please visit our Consumer and Retail page.

Browse this series on Market Realist:

• Part 1 - Best Buy’s 1Q16 Revenue Declines, But Still Exceeds Estimates

• Part 2 - Best Buy’s Domestic Segment Beats Its International Segment

• Part 3 - Best Buy’s 1Q16 Gross Margin Improves, Operating Margin Dips