Best Buy shares rise after holiday sales report
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Best Buy shares rose more than 16 percent today to $14.21, following a better-than-expected holiday sales report.
The consumer electronics retailer said U.S. same-store sales were about the same as a year ago. Many investors took that as great news for a company that has seen sales steadily slip. But analysts and consultants who follow the company see reasons for encouragement, discouragement or confusion in the report.
"We've got very mixed messages," said retail consultant Howard Davidowitz. "The best message was very strong online sales."
Best Buy greatly lowered its fiscal-year projection for cash generated by operations. The company now projects free cash flow will be about $500 million for the current fiscal year. In November, the company said it expected free cash flow to be between $850 million and $1.05 billion.
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It attributed the drop to a shift when inventory was received and paid for, but did not specify the effect of that. Analysts wonder about the extent to which price cuts sustained sales at the expense of profit margins.
The company won't report earnings until next month.
Davidowitz said the company last August forecast as much as $1.5 billion in cash flow. He says lower cash flows make a successful buyout bid by company founder Dick Schulze less likely.
"That could affect Schulze's offer because he pays back debt with cash flow," Davidowitz said. "The people who are financing him are very focused on cash flows. This is a critical metric. This their number."
Best Buy said its U.S. online sales rose 10 percent to $1.1 billion for the nine weeks that ended Jan. 5.
But Morningstar analyst R.J. Hottovy was unimpressed.
"Posting only 10-percent growth when the overall category was up 14 percent suggests they still a have a lot of room to grow online," Hottovy said. "I'm not seeing a lot in today's results that shows they're really gaining against their most aggressive competitors, whether it be Amazon or the manufacturers and vendors themselves who continue to bypass the direct retail channel and get their products directly to consumers."
In its stores, Best Buy said sales of mobile phones, tablet computers, eReaders and appliances rose. Meanwhile same-store sales of TVs and other computers declined.
These days for Best Buy any positive news can provide a good kick, Edward Jones retail analyst Brian Yarbrough said.
"When your stock is down to five-times earnings, any kind of news that it's not going out of business is obviously going to get you a nice pop," Yarbrough said.
