Best Buy Inc.
Stock Evaluation Analysis
Best Buy is the largest specialty retailer of consumer electronics in the U.S., selling a variety of brands of electronic devices such as TVs, home theater systems, cameras, appliances, computers, mobile phones, video games, software, and repair & installation services to consumers across the country under different store brands (Trefis, 2014). The company has over eleven hundred brick and mortar stores in the U.S. And also operates a click and mortar strategy, wherein it uses online channels as an effective way to boost store sales and allocates any sales made online, to its stores.
BestBuy.com is among the top ten retail websites in the United States and hase the number one customer loyalty program of its kind; there are more than a billion visitors to the BestBuy website and over six hundred million visits to the U.S. stores each year (Best Buy, N.d.). The company is known for their "Blue Shirts" sales associates and Geek Squad Agents are committed to delivering on their Customer Promises which are:
1. The latest devices and services -- all in one place
2. Knowledgeable, impartial advice
3. Competitive prices
4. The ability to shop when and where you want
5. To support you for the life of your products
Circuit City, the only direct competitor of Best Buy and the second largest electronics retailer in the U.S., has filed for bankruptcy (Trefis, 2014). Best Buy now competes with primarily with retailers such as Walmart, Amazon, Target and Costco.
The key drivers in Best Buy's current position are cited as the company's revenue per square foot and the number of stores that the company operates. Even though the company operates in a multi-channel distribution niche, the company is still heavily reliant on its brick and mortar channels for a value added segment that its online competitors, such as Amazon, can't touch. However, the revenue per Square Foot for Best Buy U.S. has witnessed a decline from $953 in 2006 to $888 in 2010, partially driven by comparable store sales declines and lower-than-average performance...
Furthermore, in fiscal 2013, Best Buy closed 47 U.S. Best Buy big box stores and if Best Buy decides to continue with store closures then this could negatively impact its value offering and reduce its stock price. The brick and mortar niche for consumer electronics is becoming increasingly irrelevant and the stock is expected to continue on a long and slow decline unless some unexpected innovation occurs from within the company in regards to its core competencies.
Industry Analysis
Best Buy operates in a completely unique industry position. Best Buy wants to be the best consumer electronics outlet in the U.S. And beyond. The multinational retailer sells both products and services through three primary channels: retail stores, online, and call centers. Its branded store banners include Best Buy, Best Buy Mobile, The Carphone Warehouse, The Phone House, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, and Pacific Sales (Hoovers, N.d.). The wide variety of products that it offers puts the company in a position in which it competes against firms that are not in the same industry. For example, Hoovers lists the top three competitors as:
Wal-Mart Stores, Inc.
Apple Inc.
Amazon.com, Inc.
After Circuit City filed for bankruptcy, the only competition that resulted are companies that sell electronics but do so from an entirely different operating model.
Figure 1 - Industry Players (Hermes, 2013)
Stock Analysis
Dividend Growth
Best Buy (BBY) pays dividends quarterly and for the last five years this rate has ranged from fourteen cents in 2009 to up to seventeen cents in 2013 (Y Charts, 2014). This was one of the attractions in 2012 when the stock closed out at the year end at $11.85; it was a fat 5.7% yield, making it a compelling stock for income investors betting on the chain's survival (Munarriz, 2014). Furthermore, historically, the best performing stocks over the last…
