Wednesday, December 15, 2004

Best-Buy: Good sign for Consumer electronics

BBY reported earnings this morning that are slightly ahead of expectations, also updated guidance for FY2005 which seems in-line to slightly positive. "Month-to-date revenue is on track with our expectations," stated Darren Jackson, executive vice president and CFO. Seeing strength in "digital televisions, MP3 players, digital cameras, notebooks and appliances, among other areas."

Maybe we won't have to worry about consumers' willingness to spend on discretionary items after all. But I am still concerned about slower than expected price declines on digital TVs and how that might affect demand for semis that go into those TVs. Seems like BBY and other retailers are lowering prices at a tepid pace which is leading to slower than expected unit pickup. But we still have 15 days to go until the end of the year, anything could happen.


Anonymous Anonymous said...

Longer term Best Buy sits in the middle of some horrible macroeconomic trends. Consumer savings rates have to go up and the mortgage market will no longer be able to support further leveraging of consumers. Cash-out refi's on 30 year mortgage has already played out and the next alternative to cash out money in people's homes has been Hybrid ARMs. Well, at some point that becomes unstainable(although some have suggested mortgages that allow you to skip payments!). If that is the case then consumer spending has to rise at a slower rate than personal income so as to allow the savings rate to increase. This will hurt all retailers, particularly those that sell discretionary items. At the same time, you have a dollar that needs to devalue particularly against asian currencies. Hard to see how retailers that sell discretionary items from Asia do well in this kind of environment. Simply put, Best Buy has ridden a wave of cash-out refirs that has enabled consumers to buy electronics with their overvalued dollars (or undervalued Yuan, Yen, Won etc.)Electronic retailers are going to have much tougher sledding going forward.

4:22 PM  
Blogger Slash said...

Totally agree with you. This phenomena with also affect house improvement stores like Home Depot and Lowe's. As you suggested discretionary spending should decline which also affects high-end retailers suchs as Tiffany's.

Also, look at the downside for lenders that have over leveraged their balance sheet to drive earnings growth. All these are great short opportunities

8:51 PM  
Anonymous Anonymous said...

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6:04 PM  

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