Best Buy Just Apes the Part of a Retailer


At the end of the movie The Planet of the Apes, Charlton Heston falls to his knees and cries out: "You maniacs! You blew it up! Ah, damn you! God damn you all to hell!"

That's how I imagine that surviving investors of Best Buy (NYS: BBY) are reacting these days after the consumer electronics retailer reported third-quarter earnings that show revenues fell 4%, to $10.8 billion, and it recorded adjusted earnings of $0.04 per share -- far below analyst expectations of a profit of $0.12 per share. To add insult to injury, Standard & Poor's and Fitch Ratings both downgraded Best Buy's ratings with a negative outlook.

Not that anyone was expecting much from the retailer. Its mobile phone division is just about the one thing left that's going in the right direction, but that hardly makes it a best buy for your portfolio.

Best Buy Snapshot

Market Cap

$3.9 billion

Revenues (TTM)

$50.6 billion

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Return on Investment


Estimated 5-Year EPS Growth


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Recent Price


CAPS Rating



I'll admit to being one of those people who discounted early on the concept of "showrooming," where customers come in to browse the latest electronics displayed on Best Buy's shelves, only to go home and buy them from (NAS: AMZN) . That's proven to be a phenomenon that's all too real.

While its recently appointed CEO embraces the concept -- ("Once customers are in our stores," he says, "they're ours to lose") -- all that the bricks-and-mortar retailer has left is a low-margin, albeit fairly successful, mobile-phone business. While there was an overall 4.3% decline in same-store sales last quarter at the retailer (and down 4% in the U.S.), the mobile segment grew comps at a torrid 32% clip year over year. Yet, along with computers and TVs, mobile was a prime reason for the wipeout of adjusted operating income.

Hanging up on growth
The mobile segment, though, may be Best Buy's future, literally and figuratively. As noted, it's selling a lot of phones, so it will concentrate on that aspect of its business. But, like its stand-alone Best Buy Mobile stores, the company is likely to see the footprint of its big box stores shrink to shoebox size. It will probably keep its tablet computing market, which has also enjoyed some success, though I have little hope for its entrance into the industry.

It wants to directly compete against Apple (NAS: AAPL) , Microsoft (NAS: MSFT) , Samsung, and even Amazon by deploying a homegrown Android-based tablet computer. It's all part of a major restructuring that Best Buy is undergoing -- which accounted for it reporting a $0.03 per share GAAP loss -- that seems reminiscent of J.C. Penney's (NYS: JCP) failed turnaround strategy. At the same time, it still has to fend off an attempted buyout effort that's being led by the company's founder, who is in talks with Cerebus Capital Management about backing the effort. But even if a take-private effort was successful, Best Buy as a retail concept seems a relic of a different time, one that can't survive an online world.

Just monkeying around
Despite trading at just four times earnings estimates, Best Buy might look cheap, but its business is still in the midst of an upheaval. That's why I've rated the consumer electronics retailer to underperform the broad market indexes on CAPS, the 180,000-member driven investor community where informed opinion is translated into stock ratings of one to five stars.

While I think you should keep away from this damned dirty ape, let me know in the comments section below whether you agree that the only thing Best Buy has proven best at is turning away customers.

No more monkey business
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Rich Duprey owns shares of Apple. The Motley Fool owns shares of Apple,, Best Buy, and Microsoft. Motley Fool newsletter services recommend Apple,, Best Buy, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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