Company Name: Best Buy
52-week high/low: 27.95 /11.20
Avg daily Volume: 9 Million
Target Price: $13
Part A: The Story
What does Best Buy do?
It’s the leading retailer of consumer electronics and entertainment software and it operates approximately 4,300 stores in North America, China and Europe.
It offers products in five major revenue categories:
• consumer electronics (36% of FY 12 (Jan.) revenues),
• computing and mobile phones (40%),
• entertainment (12%),
• appliances (5%), and
• services (6%)
Best buy sells it products through its brick and mortar stores and through its online website.
The Consumer Electronics Association is forecasting 2.7% growth in 2013 after consumer electronics sales reached an estimated $204 billion in 2012, which was up 5% from the prior year.
The Demand will remain steady driven primarily by tablet computers and smartphones, and we expect a modest uptick in video game consoles following new hardware launches. However sales of TV and personal computers are expected to decline.
As for competition, we think retailers that best differentiate themselves, either through service, marketing or product mix, will benefit, although we note price is a critical competitive factor.
Part B: Numbers
Best buy has not been able to compete with its competitors. According to surveys consumers perceive Best Buy prices to be 27% more expensive than its competitors. Best Buy has not been able to counter the surge of online retailers and amongst consumers there is an increased use of best buy as a showroom.
Our forecast for FY 2014 incorporates decreasing revenues and operating margins.
In the three years through FY 12, BBY posted a compound annual growth rate in sales of 4.0%. BBY's growth has largely been a function of new store additions and acquisitions, as same-store sales have declined an average of 1.0% over the past three years.
We project a...