Sometimes up is down and down is up -- at least that is what is seems these days in the stock market.
Yesterday, Best Buy (NYSE: BBY) and Goldman Sachs (NYSE: GS) reported weak results in their recently completed quarters.
Best Buy managed to beat analyst's expectations and actually turn a profit for its quarter, while Goldman reported a larger-than-expected loss.
So what is the reaction in the market?
Up, of course. Shares of BBY closed up almost 18%, and GS finished the day up more than 14%.
Electronics retailer Best Buy said profit fell to $52 million, or 13 cents per share, in the third quarter, down 77% from a year ago when the company earned $228 million, or 53 cents per share. The company stated it would have reported earnings of 35 cents per share had in not been for a charge related to a decline in market value of its 2.9% stake in U.K. company Carphone Warehouse Group PLC.
Analysts were expecting earnings of 28 cents per share, according to FactSet Research.
In September when I profiled the company, I noted that with the federal government seizing control of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), lower mortgage rates could soon be on the horizon. And the more money in consumers' wallets meant more spending at places such as Best Buy.
Though lower mortgage rates are here, what I didn't count on was the economy continuing to worsen, with mounting job losses and consumer confidence spiraling downward.
Best Buy Vice Chairman and Chief Executive Brad Anderson said it best: "The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced. We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace."
Statements like this make the rally in the shares yesterday very perplexing. I'm not complaining, mind you, but I'm still perplexed.
Why, if consumers are changing their behavior and adjusting to the "new realities of the marketplace," do I want to own shares of BBY?
Doesn't Best Buy capitalize on consumers' thirst for big screens, iPods, video games and all things tech? Where is the money coming from?
Best Buy said same-store sales fell 5.3% in the quarter, confirming that the consumer is indeed pulling back. To combat the weak consumer, the company plans to scale back on capital spending by 50% in 2009, open "significantly" fewer stores and offer enhanced buyout packages to nearly all of its corporate employees.
So, Best Buy is taking steps to combat the weak consumer, but will it be enough?
With competitors falling by the wayside, Best Buy will at least have one less headache to worry about, and it has the financial strength to ride out a couple of tough quarters.
I believe the company will come out of this downturn stronger. It may be a bumpy road for the company in the short run, but in the long run, I like Best Buy.
Jamie Dlugosch is a contributor to InvestorPlace.com.
Why do we have a weak dollar?
Holiday hiring slow for retailers
Closing Bell: What sell-off? (AIG, ABK, EPR, MBI, JAVA, ORCL, ERTS)
Reader Comments (Page 1 of 1)
12-17-2008 @ 1:22PM
BHarrison said...
Heck, I thought that Best Buy was going to be the last "electronics store" left standing after the bankruptcy of all of the others. If Best Buy goes under, the only place left to purchase elctronics will be on-line. (Personally, Inever cared for Best Buy . . . ther "service" was lousy and their prices were too high.)
1-11-2009 @ 7:45PM
ken spring said...
as past best buy assc , the !@@## on real ways keeping good people in sales floor , any one can sell a box to them. they know
that people have no where else to go when cc goes belly up so now they no where else but them . ist not best buy is goning be only buy store left. from