Can Best Buy Thrive After RadioShack Collapse?

RadioShack has two fundamental problems, neither of which are problems for Best Buy. The first is a remarkable drop in sales. Revenue dropped 13% last quarter to $737 million. Same-store sales for locations open at least a year dropped 14%. Second, creditors have blocked RadioShack from shuttering more than 1,000 locations, a move that might be absolutely necessary for it to remain viable.

However, Best Buy’s shares have traded like those of a company in trouble. They are off 27% this year, against a slight rise in the S&P 500. Over a five-year period, the stock is down 23% against surges in value of all the major indices, including a more than 100% rise by the S&P 500.

After more than a year of trouble in both sales and management stability, Best Buy appeared to get its legs back under new CEO Hubert Joly. His successful efforts were short lived. In the most recent quarter:

Domestic revenue of $7.78 billion declined 2.1% versus last year. This decline was primarily driven by (1) a comparable sales decline of 1.3%; and (2) a revenue decline of $63 million, or 80 basis points, due to the less favorable ongoing economics of the new credit card agreement. These declines were partially offset by $16 million, or 20 basis points, of non-recurring financial benefits associated with the transitional economics of the new credit card agreement.

Domestic online revenue was $639 million and comparable online sales increased 29.2% due to (1) substantially improved inventory availability made possible by the chain-wide rollout of our ship-from-store capability that was completed in January 2014; (2) a higher average order value; (3) increased traffic driven by greater investment in online digital marketing; and (4) a higher number of online orders being placed in our retail stores.

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At first glance, not terrible, but balanced against arch rival Amazon.com Inc. (NASDAQ: AMZN), deeply troubling. In its most recently reported quarter, Amazon’s revenue rose 23% to $19.7 billion. Amazon has a number of products it can offer to boost customer loyalty, none of which Best Buy can match. Foremost among these are the Kindle line of tablets and its streaming video service. And there are rumors that Amazon will release its own smartphone.

Finally, Best Buy’s online revenue did rise last quarter, but to a very modest $639 million domestically. The future of consumer electronics sales is e-commerce, and on that score, Best Buy is doing poorly.