Best Buy Comments on Earnings Call Sound Bearish For RadioShack $BBY $RSH

Transcript:

Now looking forward to the back half, as Hubert remarked earlier, industry wide sales are continuing to decline in many of the consumer electronics categories in which we compete. We are also seeing ongoing softness in the mobile phone category ahead of highly anticipated new product launches. Therefore absent any changes in these declining industry trends and with limited visibility to new product launch quantities, we continue to expect comparable sales to decline in the low single digits in both the third and fourth quarter. From an operating income rate perspective in the back half, we are expecting the following business drivers versus last year. One, a similar promotional competitive environment but with better promotional effectiveness internally; two, a greater mix of online revenue that will put pressure on the overall operating income rate; three, continued industry softness and higher promotionality in Canada and China...

Q & A: This is really the first time you have given definitive guidance on your comp outlook for the all-important fourth quarter and you are now saying it will be down low single digits. Where does this number really compare to where your plan was at the beginning of the year and what really has changed if anything in terms of your guidance on the comp for Q4 specifically?

SHARON MCCOLLAM (CFO)
Alan, we certainly believed that early in the year that we would see less softness in those NPD categories. We also were more optimistic about the innovation in mobile and after last year having the Samsung Galaxy other things came out, we had a few exciting things last year. But the fact that the innovation in mobile has been pretty soft this year was different than we had hoped. Now the good news is that we have remained very conservative and you know us. We don't live on our wishes and hopes here. We live on what the data says. So based on the industry data around these categories, it still does not paint a positive picture. If you look at the people who write about this industry, even with a highly anticipated phone, not speaking to any one vendor but one highly anticipated phone launch, the saturation in the mobile phone category makes this complicated to forecast. We think it is exciting and we think the installment billing programs which by the way Hubert also called out, we are seeing an acceleration in that and it is very fast. The disruption of the carriers could be a dynamic that we did not anticipate. What is happening with the carrier plans right now which you are observing I'm sure, we did not anticipate. Now again until we see what that means, we are not going to put that into a forecast. We are looking at economic data just like you, our consumer trending data and this is what it is showing. Now that is the same data I might add that told us to tell you last quarter that Q2 would be negative low single-digit comps which is exactly where we ended up and we still in those NPD categories gained share. So that is what we are using. Could it be better? Yes. Is the acceleration of Ultra High Definition TV happening? There is no question about it.

Comment from an analyst: "If Best Buy’s top line is hurting, particularly in the mobile business, that portends incredibly poorly for RadioShack."

"Why Best Buy is Going out of Business...Gradually"

From an old Forbes article

"First comes the strategic bankruptcy, well in progress at Best Buy, where management’s sole focus is improving some arbitrary metric from last quarter, even when doing so actually interferes with customers trying to buy something else. The financial collapse comes later. But if history is any guide, the second part, once it starts, will be quick."

This reminds me of Radio Shack - the strategic bankruptcy was selling cell phones.

Best Buy Predicts Weak Sales - Bearish For Radio SHack $RSH $BBY

Best Buy's reported earnings today included this comment from Sharon McCollam, Best Buy EVP, CAO and CFO,

"As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete. We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly-anticipated new product launches. Consequently, absent any major product launches, we are expecting comparable sales to be negative in the low-single digits in both the second and third quarters"

That would be grim for Radio Shack.

Radio Shack Fun Facts $RSH

• The Shack turns over inventory about 4.3 times per year. There's about $180,000 of inventory (cords and widgets?) per store. By comparison, Best Buy turns over inventory close to 8 times per year.
• Best Buy sales are $300k/employee, Shack sales are $125k/employee. 
• So, Shack takes almost twice as long and 2.4x as many employees to sell a dollar of inventory.
• The Shack's gross margin is 34% versus Best Buy's 23%. However, Best Buy's SG&A is 20 cents per dollar of revenue and RSH's is 41 cents. 
• I think these are both terrible businesses, by the way, that will be made extinct by Amazon, Walmart, and Target. However, Best Buy has no net debt and positive EBITDA. Best Buy will give a eulogy at the RSH funeral.
• "hhgregg", a smaller Eastern retailer with less sales than the Shack is profitable (tiny margins) and turns its inventory 8x per year, with a gross margin of 29% that is almost as good as the Shack.
• $10 million daily sales for RSH corp is only about $2,500 per store! You can probably be in the store manager hall of fame by selling $25,000 of product over a 3 day weekend. In other words, these stores are doing about $900k a year revenue. "Hhgregg" has sales per store of almost $11 million.
• The Shack had a billion dollar market cap at the beginning of 2012! They paid 25 cents in dividends that year! They should have raised cash. Why is a company with no viable business model using debt financing?
• "This proposed store closure program is expected to preserve liquidity by avoiding operating losses and generating cash by liquidating inventory in those stores. This will be partially offset by lease termination payments and liquidation costs."

"Why Best Buy is Going Out of Business Gradually"

"[ Amazon]simply does what consumers want. Best Buy does what would be most convenient for the company for consumers to want but don’t, then crosses its fingers and prays."