Best Buy's U.S. Stores are More Than 3x as Valuable as its International Stores

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Best Buy ( BBY ) is a specialty electronics retailer that competes with general retailers like Wal-Mart ( WMT ) and Costco ( COST ) as well as other specialty retailers like GameStop ( GME ) and Radio Shack ( RSH ). Our price estimate for Best Buy stands at $38.48 , which is about 20% above market price.

We estimate the Best Buy's U.S. stores constitute around 70% of the stock's value, well beyond the 22% contribution from its international stores. This substantial difference highlights the relative sensitivity of Best Buy's overall performance to U.S. and international markets - Best Buy's U.S. performance is the prime driver of its stock value.

So what makes U.S. stores more than 3 times as valuable as international stores for Best Buy?

Difference in Number and Size of Stores

Best Buy had close to 1,100 big-box format stores in the U.S. vs. about 407 international stores at the end of fiscal 2010.

Store size is another notable difference between Best Buy's U.S. and international operations. While U.S. stores averaged around 38,600 square feet in 2010, Best Buy's international stores were much smaller, averaging around 31,900. More area generally implies more goods sold, barring large discrepancies in sales productivity.

Difference in Revenue per Square Foot

We estimate that average annual revenue per square foot for Best Buy's U.S. stores stood at $885 in 2010, vs. $816 for international stores. While this difference isn't huge, we anticipate a widening spread going forward. We project that the U.S. revenue per square foot figure will increase in the years ahead, with the international store figure remaining relatively flat.

Although Best Buy is expanding both in Europe and Canada, the majority of its international expansion is expected to come from China, which typically records revenue per square foot figures on the low end of the spectrum. As the proportion of Best Buy retail space in China increases relative to its total international retail space, revenue per square foot totals could come under pressure.

See our full analysis and $38.48 price estimate for Best Buy stock



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BBY , COST , GME , RSH , WMT

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