CORRECT: Best Buy 4Q Results Seen Gaining From Circuit City
26 Mars 2009 - 10:52PM
Dow Jones News
As Best Buy Co. (BBY) gets set to report fourth-quarter results
Thursday, Wall Street is already pricing in big market-share gains
for the retailer tied to the recent demise of Circuit City Stores
Inc. (CCTYQ).
Closing at $33.46 on Wednesday, Best Buy shares have risen 31%
since Circuit City wrapped up liquidation sales and shut its 567
stores March 8, worrying some Best Buy watchers of pressure
Thursday and beyond.
"With high expectations for the quarter going into the earnings
release, we would look for a pull back in the share price to the
high $20's," Pali Capital analyst Stacey Widlitz said in a note to
clients Wednesday.
Even if results meet Wall Street's forecasts, concerns linger
over the consumer spending outlook, Best Buy's growth plans and the
promotional environment.
Analysts say Best Buy could ultimately gain 30% to 40% of
Circuit City's roughly $9 billion in annual sales.
Wedbush Securities analyst Michael Pachter estimates Best Buy,
already the largest specialty U.S. electronics retailer, may have
picked up five percentage points of market share in the most recent
quarter as a result of Circuit City's closing, helping it
outperform the overall electronics retailing market.
Analysts polled by Thomson Reuters expect Best Buy to post
fourth-quarter earnings of $1.38 a share, compared with $1.71 a
year earlier. Same-store sales are expected to fall 6.9%.
But forecasts for the quarter and for the February 2010-ending
fiscal year have been increasing in recent weeks. Wall Street's
consensus forecast for fiscal 2010 is for earnings of $2.47 a share
on a 2.4% decline in same-store sales.
Best Buy on January 9 said it expected fiscal 2009 earnings to
range from $2.50 to $2.70 a share, and it promised to provide its
first take on fiscal 2010 on Thursday.
Credit Suisse analyst Gary Balter said Operating Chief Brian
Dunn, who replaces Chief Executive Brad Anderson in June, may be
the one providing direction on the current year.
"There is a stock risk that he discusses moving closer to price
parity with Wal-Mart and Amazon, the current competitors now with
Circuit City out of the picture," Balter said in a recent note. "He
may also take a more conservative view of the outlook, a stance we
often see when a new leader takes charge. Both may send the stock
lower on earnings day."
While Wal-Mart Stores Inc. (WMT) and Amazon.com (AMZN) are often
talked of as the other chief beneficiaries of Circuit City's exit,
don't overlook a small army of appliance and furniture dealers that
are adding electronics to their stores.
Facing weak sales in those existing product categories, local
dealers hope to offer the same kind of personal attention that
benefits Best Buy's sales.
At a conference in New Orleans earlier this month, a $12 billion
buying group for independent retailers, The Nationwide Marketing
Group, touted opportunities for its thousands of members to expand
into electronics. Robert Weisner, executive vice president and
director of the group, predicted Nationwide members carrying
electronics could jump from 500 to more than 1,000 in the next five
years, according to a published report.
Independent and regional electronics dealers, as well as
office-supply chains like Office Depot Inc. (ODP) and old-line
retailers like Sears Holdings Corp.'s (SHLD) Sears and Kmart chains
are also hoping to take a chunk of sales and could provide renewed
competition in the category.
"We are certainly happy with the opportunity that (Circuit
City's closing) provides both of our formats," said Karen Austin,
president of electronics for Sears Holdings, in a recent interview.
"We have all the top brands, we have knowledgeable sales staff, and
there's less and less of that."
-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145;
maryellen.lloyd@dowjones.com