Best Buy Co.’s U.S. holiday sales were weaker than a year earlier, raising concerns that months of effort to improve operations aren’t gaining traction where it counts. The company’s shares plunged more than 30% in early trading on the news.
The company’s discounting strategy appeared to blow up in its face. Best Buy indicated it cut prices aggressively to compete with Wal-Mart Stores Inc., but those moves reduced the overall value of sales and squeezed profits. In addition, the discounting appeared to do nothing to persuade shoppers to buy more electronics. Instead, they just reduced the price of what was sold.
“The highly promotional environment has not led to higher industry demand,” Chief Executive Hubert Joly told analysts during a morning conference call.
Best Buy shares had soared last year on hopes new Chief Executive Hubert Joly would get the big-box retailer back on its feet, amid concerns that its stores were becoming little more than a testing ground, or showroom, for products that ultimately would be bought elsewhere, particularly on Amazon.com. The holiday results indicated Best Buy’s challenges may be harder to fix than many thought.
In the nine weeks leading up to Jan. 4, Best Buy’s sales excluding newly opened or closed stores fell 0.9% in the U.S. The company said the discounting also took a heavy bite out of its operating margins for the current quarter. Shares fell to $26 from Wednesday’s close of $37.57.
The company said it would respond by more aggressively cutting costs, following similar moves by Macy’s Inc. and J.C. Penney Co. and pointing to further shrinkage for a retail industry that has effectively trained customers to only buy when discounts are deepest.
Best Buy boosted its promotions to compete with other retailers during the holiday season and warned in November that its fiscal fourth-quarter margins could take a hit as a result. The company was among a long list of retailers that opened most of its doors on Thanksgiving Day in an effort to attract more shoppers. Best Buy also extended its hours in the days leading up to Christmas.
The company said the moves helped it win market share over the holidays, but that didn’t move the top line higher.
Mr. Joly said holiday revenue was hurt by factors including supply constraints for key products, significant traffic declines during the middle of the holiday season and a “disappointing” mobile-phone market.
Same-store mobile phone sales rose 3.2%, a relatively weak improvement that Chief Financial Officer Sharon McCollam attributed to a lack of “newness” in the category. But the company also blamed shortages of some high-end tablets and mobile phones for the stumble.
Results were weak enough to prompt Chairman Emeritus Richard Schulze, the store founder who shook up the company last year with a buyout proposal, to release a statement backing its executives.
“I have complete faith in the long-term strategy and I am confident that management is taking the steps required to win and position the company for a successful future,” he said.
Best Buy now expects its operating income will decline in the fourth quarter. The slump follows weak guidance earlier this month from electronics and appliances retailer HHGregg Inc. and GameStop Corp.
Larger rivals Amazon.com Inc. and Wal-Mart Stores Inc. haven’t yet released quarterly results. Ms. McCollam said the company will invest more in online marketing and customer databases this year to catch up with its competitors’ more advanced techniques.
“We were out-competed from an online marketing standpoint,” she said.
In a symbolic step, President Barack Obama has quietly signed up for health coverage through the new insurance exchanges, showing solidarity with Americans still struggling to figure out what Obama’s signature health care law means for them.
As commander in chief, the president receives his health care through the military, so his new coverage will go unused. Rather, the move fulfills a commitment to personally participate that Obama made in 2010, when he signed into law the Affordable Care Act requiring millions of uninsured Americans to buy insurance or face a penalty.
The White House said Obama’s decision to enroll demonstrated his support for the exchanges, the cornerstone of a sweeping health overhaul whose rollout has been marred by cascading delays and widespread technical problems. But Obama’s enrollment experience offered little resemblance to that of most Americans who have shopped for plans through the glitch-prone HealthCare.gov website.
Obama, who is vacationing in Hawaii, did not personally enroll himself in a plan, and didn’t go through the website. Instead, staffers enrolled the president in person through the Washington, D.C. exchange, the White House said.
Despite the effort to show Obama was taking a personal stake in the health law, he was signed up in private, without reporters present. Obama was enrolled over the weekend and the White House announced it on Monday.
White House officials noted that for security reasons, the president’s personal information is not readily available in government databases that the exchanges use to verify identities and check eligibility for tax subsidies.
“Like some Americans, the complicated nature of the president’s case required an in-person sign-up,” the White House said.
Millions of other Americans have faced website glitches that made signing up through the exchanges difficult or impossible, particularly in the initial weeks before massive fixes to the site were put in place.
Obama selected a “bronze” plan, the least-expensive plan available for someone his age. The White House said the plan Obama chose will cost him less than $400 a month. The president’s wife and daughters, who already have health care, did not enroll.
Obama’s enrollment in the exchange came just before Monday’s deadline for Americans to sign up for insurance and still receive coverage starting Jan. 1. But even that deadline came with a caveat, underscoring the degree to which the implementation of Obama’s top legislative achievement is still a work in progress.
Anticipating heavy website traffic by those looking to beat the deadline, the Obama administration effectively extended it by a day, giving people in 36 states a one-day grace period to select a plan. The White House said a vacationing Obama received a detailed update on Sunday about preparations for that and other deadlines, and would continue to be briefed throughout his stay in Honolulu.
Mr Kuroda and Japan’s prime minister, Shinzo Abe, have launched a vast
stimulus programme, promising in April to inject $1.4 trillion into the
economy in less than two years through quantitative easing, to jolt the
Japanese economy out of a 15-year deflationary malaise and lift inflation to
The policy triggered a massive stock market rally. But a surge in bond yields,
which means bond prices have fallen, has threatened to make government
Domestic banks could be forced to take losses on their large holdings of
Japanese government debt.
Mr Kuroda said that the Bank of Japan was watching for any signs of
overheating in asset prices and would take “appropriate action” if financial
imbalances emerge, suggesting it might unwind its ultra-loose policy.
Most U.S. stocks fell, after benchmark indexes climbed to record levels last week, even as government data showed retail sales unexpectedly rose in April.
Yum! Brands Inc. fell 2.1 percent after the owner of the KFC and Pizza Hut dining chains reported a slump in April sales in China. Corning Inc. (GLW) climbed 0.9 percent as analysts raised their recommendation for the shares. Theravance Inc. rose 18 percent after Elan Corp. agreed to pay $1 billion for a share in royalties on new drugs.
The Standard & Poor’s 500 Index (SPX) rose less than 1 point to 1,633.77 at 4 p.m. in New York. The Dow Jones Industrial Average slid 26.81 points, or 0.2 percent, to 15,091.68. Almost 5.3 billion shares traded hands on U.S. exchanges today, or 16 percent below the three-month average, as about seven stocks declined for every five that advanced.
“It’s obvious that this market has got legs, the question is whether the economy is going to grow some legs to support stocks going forward,” Frank Braddock, senior portfolio manager with the Braddock Group of JHS Capital Advisors, said by phone from Columbia, South Carolina. JHS oversees about $3.4 billion.
The 0.1 percent increase in U.S. retail sales followed a 0.5 percent decline in March, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent drop. A separate report showed companies in the U.S. unexpectedly held inventories in check in March as sales fell by the most in nine months, an indication orders will rise as demand picks up.
Overseas, Israel’s central bank cut its benchmark rate 25 basis points to 1.5 percent, joining a wave of monetary easing spanning from the U.S. to Europe. In China, the world’s second-largest economy, fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates.
“It seems consumers have been able to absorb the tax increases better than most had thought, but we still need to see if we can come out of this second-quarter purgatory,” Ron Florance, the Scottsdale, Arizona-based managing director of investment strategy at Wells Fargo Private Bank, which has $170 billion assets under management, said in a phone interview. “Israel surprised with their rate drop and everyone around the world is now doing easy money, so the pedal is to the metal at the global level.”
The S&P 500 rallied to a record on May 10, capping a third week of gains and extending its advance so far this year to 15 percent. U.S. stocks climbed last week as companies from Walt Disney Co. to DirecTV beat earnings estimates and central banks worldwide stepped up monetary stimulus to boost growth.
The Chicago Board Options Exchange Volatility Index, or VIX, fell 0.3 percent to 12.55. The equity volatility gauge is down 30 percent for the year.
Seven out of 10 (SPXL1)industries in the S&P 500 retreated as phone stocks and raw-material producers declined the most, while health-care companies had the largest gains as a group. Peabody Energy Corp. slumped 4.1 percent to $20.14 for the biggest retreat in the S&P 500, followed by losses of more than 3.4 percent in Joy Global Inc. and U.S. Steel Corp.
Yum slid 2.1 percent to $68.92 after the company reported a 29 percent drop in sales at stores open at least 12 months in China as the spread of bird flu hurt demand. Analysts projected a 27 percent drop, the average of five estimates compiled by researcher Consensus Metrix. Sales dropped 36 percent at KFC while gaining 5 percent at Pizza Hut.
AutoZone Inc. slipped 1.2 percent to $415.76. The retailer of automotive replacement parts and accessories was downgraded to hold from buy at Deutsche Bank AG with a 12-month price estimate of $410 a share.
Mosaic Co. lost 3.1 percent to $61.30. The world’s largest producer of phosphate crop nutrients said it favors share buybacks over dividends to redeploy surplus cash. With an estimated $2 billion of cash by the end of the month, Mosaic is assessing its ability to buy back shares while seizing growth opportunities and maintaining a “solid” investment-grade credit rating, Chief Financial Officer Larry Stranghoener said today on a conference call.
Corning (GLW) rose 0.9 percent to $15.24 after Barclays Plc raised its recommendation for the shares to overweight, the equivalent of a buy rating. Morgan Stanley also upgraded the maker of glass for flat-panel televisions to equal weight, a level similar to hold, from underweight.
Theravance jumped 18 percent to $41.20 after Elan agreed to buy a share of drug royalties that Theravance will receive from GlaxoSmithKline Plc. The Irish drugmaker will receive 21 percent of royalties earned by Theravance on four respiratory drugs, and 20 percent of that income will be paid to Elan shareholders as a dividend.
J.C. Penney Co. rose 2.9 percent to $18.24. The department-store chain that replaced its chief executive officer last month set a lender meeting for tomorrow to discuss a $1.75 billion loan, according to a person with knowledge of the matter who asked not to be identified because the deal is private. CEO Myron Ullman is working to improve sales after revenue last year tumbled 25 percent to $13 billion amid Ron Johnson’s failed attempt to remake the retailer.
The S&P 500 has climbed to record highs on seven of the last eight trading days. Oppenheimer & Co.’s John Stoltzfus raised his year-end target for the index to 1,730 today from 1,585, ranking him as the second-most bullish strategist on Wall Street after Canaccord Genuity Securities LLC’s Tony Dwyer, who has a 1,760 estimate on the benchmark index.
Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.
The S&P 500 has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.
For bulls, the valuations show stocks will keep rising after the S&P 500 advanced 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.
“The size of this rally’s not what keeps me up at night,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $170 billion, said in a May 8 phone interview. “That was a tremendous rally then, too, but I’m not getting all nervous based on the size of the rally this time, because we’re not there yet in terms of valuation.”
The figures may prompt economists to forecast spending this quarter will cool less than previously projected as Americans overcome a January increase in the payroll tax. Photographer: Scott Eells/Bloomberg
May 13 (Bloomberg) — Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, talks about U.S. stocks, retailers and corporate earnings.
She speaks with Tom Keene, Sara Eisen, Alix Steel and Michael McKee on Bloomberg Television’s “Surveillance.” (Source: Bloomberg)