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What stock market slump? If you own shares of Best Buy (NYSE: BBY) you’re flying high.
The retailer of consumer electronics and appliances on Tuesday reported better-than-expected second-quarter results, including a 12% rise in net income and a 0.8% rise in revenue, which most analysts had expected to decline.
The positive Best Buy earnings news propelled shares. The stock ended the day – an overall down day on Wall Street – at $32.95, up $3.68 per share, or 12.6%. While the company said that sales benefited from strong demand for appliances and mobile phones, its bottom line clearly reflected the results of a restructuring.
Best Buy adopted a cost-cutting program earlier this year and has already slashed about $100 million from annual costs. It’s also benefiting from sales of Apple (NASDAQ: AAPL) products such as the Apple Watch, and it will become an authorized Apple reseller later this year.
And, perhaps the best detail in the whole report, online sales rose 17%, helping erase the memory of the outage it suffered on Black Friday last year.
Now, the reality check. While it was undoubtedly a good day and a good quarter for the retailer, investors should probably look at Tuesday’s stock rise with a bit of skepticism. Best Buy moved like a true growth stock, when the truth is, Best Buy is a maturing company whose overall revenues grew at less than 1% in the quarter.
This strong gain seems partly a reaction to the company’s poor performance of late. A major restructuring, a major holiday gaffe, the demise of rival RadioShack and ongoing uncertainty about the role of brick-and-mortar stores in today’s retail industry have weighed heavily on Best Buy’s stock. Even after Tuesday’s rally, the stock remains well off its high for the year, and even further below its five-year high.
Best Buy, in other words, still has a lot of work to do, both in extending its recent growth and winning over investors who remain on the sidelines. Keep in mind that we’re in late August right now, trading volume is thin and stock moves in these lazy, hazy days are often more pronounced than at other times of year. If you don’t already own Best Buy shares, you might want to wait a few days for the dust to settle before you jump in.
I think Best Buy’s future looks bright. The merchandise it sells is a good fit with the brick-and-mortar format, since shoppers often make impulse buys of technology products and need to kick the tires on larger appliances like refrigerators. Best Buy has worked to make the most of its physical stores, with service features such as Geek Squad that bring shoppers into the store, while also investing in online channels. And it’s a clear leader in the space.
But I’m not convinced these latest gains will stick. Expect more volatility and look for buying opportunities when the stock dips.
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