On Jan 22, 2014, Zacks Investment Research downgraded
Best Buy Co., Inc.
), the consumer electronics retailer, to a Zacks Rank #5 (Strong
Sell). So far, in 2014, the stock has fallen roughly 36%.
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Why the Downgrade?
Estimates for Best Buy have shown a downtrend since the company
reported its holiday sales results.
Although the company made a remarkable turnaround in 2013 with
the stock price rising over four fold, 2014 began on a soft note
with the stock crashing 30% in a single day following dismal
holiday sales data and the subsequent trimming of guidance,
raising concerns over CEO Hubert Joly's ambitious restructuring
The company's sales dropped 2.6% year over year to $11,451
million for the nine weeks ended Jan 4, 2014, while comparable
store sales (comps) dropped 0.8% over the same time frame. As per
segments, sales at the domestic segment dipped 1.5% to $9,754
million from the prior-year period while comps fell 0.9%. The
International segment's sales waned 8.1% to $1,697 million but
comps nudged up 0.1%.
Best Buy held that intense promotional war, which characterized
the holiday season, had significantly impacted its margins and
thus compelled a downward revision in its operating margin
guidance. The company had cut down prices, at the expense of
profits, to compete better with peers such as
Wal-Mart Stores Inc.
Sears Holdings Corp.
This Minnesota-based retailer now expects the operating margin to
shrink 175-185 basis points (bps) year over year during
fourth-quarter fiscal 2014. Moreover, tight supply of key
products, lower traffic and weakness in the mobile phones
category contributed to the lower-than-expected sales.
The trimmed guidance triggered a downtrend in the Zacks Consensus
Estimate, as analysts became less constructive on the stock's
future performance. This is evident from the movement witnessed
in the Zacks Consensus Estimate that plunged 24.8% to $1.85 per
share for fiscal 2013 and roughly 20.9% to $2.23 per share for
fiscal 2014 in the past 7 days.
A Stock that Warrants a Look
A better-ranked retail stock that looks promising and is expected
to continue with its upbeat performance is
) holding a Zacks Rank #1 (Strong Buy).