Best Buy Stock Will Only Break Your Heart

Investors are loving Best Buy these days, but can the same be said about its shoppers? Best Buy stock may be one of this year's biggest winners, but the news isn't likely to be as upbeat when the struggling consumer-electronics chain reports on Tuesday.

Best Buy stock hit a new high this week, and the shares have more than doubled this year, but don't be fooled by a pretty stock chart. Best Buy still has some pretty big problems.

Analysts see Best Buy earning $0.25 a share during the fiscal first quarter ending in April, roughly a third of the $0.72 a share it posted a year earlier. Revenue is expected to decline by 8%. This certainly doesn't seem like a company on the upswing.

Bulls will point to positive comps during its most recent holiday quarter, but Best Buy had to sacrifice plenty to arrive at the meager 0.9% same-store-sales growth. Gross margins contracted slightly, and marketing costs spiked as promotional activity picked up to woo traffic.

Oh, and let's not make the false assumption that the typical Best Buy store rang up more sales this holiday season than it did last year. There's a little more to that 0.9% increase than meets the eye, because Best Buy includes its 11% spike in online orders in calculating comps. It's a sneaky yet legal trick that way too many retailers are doing these days, and the impact was heightened here because Best Buy shuttered 49 of its superstores early last year. In other words, we had fewer stores for these sales to be misleadingly divided into. Back out the Internet sales contribution, and comps would have been slightly negative.

There's also that 11% increase in online revenue itself to frame correctly. -- Best Buy's showrooming nemesis -- saw its net sales soar 22% during its holiday quarter. Best Buy actually continues to lose ground to the leading online retailer by growing its sales at half of Amazon's clip.

Do you fancy a little more doubt in your skepticism casserole? Well, let's turn to how things will play out through the next few quarters. A few years ago, Best Buy would sell a ton of DVD players, video game consoles, and CD players during the holidays. Then shoppers would flock back to buy new media releases. Well, all of those categories are fading at Best Buy. Smartphones and tablets were the big positive drivers during the holidays. Once you buy any of those and get locked into those digital ecosystems, there's no need to keep coming back to Best Buy.

Junk food
Tuesday's report doesn't have to be a disaster. An improving economy could help mask the downward spiral. However, investors are using a lot of poor judgment this year. RadioShack -- which is in worse shape than Best Buy and has made an even bigger bet on mobile retail -- has seen its stock nearly double in 2013, even though losses are widening and sales are shrinking.

So ask yourself why these seemingly hopeless consumer-electronics retailers are rallying. They will never return to what they used to be in this age of digital delivery. Performance isn't really improving. Stock charts may not lie, but they are drawn by investors who sometimes don't know any better.

Best Buy stock will only break your heart in the end.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of and RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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