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Bloomberg's Townsend on Best Buy Boosted By Wearables (Audio) · Bloomberg Intelligence

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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
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  Speaker 1: there of one and a half percent. I'm Charlie Pellett,
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  Speaker 1: and that's a Bloomberg Business Flash. This is taking stock
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  Speaker 1: with Kathleen Hayes and Pin Box on Bloomberg Radio. Shares
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  Speaker 1: of Best Buy are up more than eighteen percent today.
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  Speaker 1: Are you happen to be in the market for maybe
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  Speaker 1: a wearable or video games, tablets, computers, TVs, drones or
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  Speaker 1: connected home. Here to connect all the dots for us
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  Speaker 1: as Matt Townsend, retail reporter for Bloomberg News, Matt, thanks
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  Speaker 1: for coming into the studio. Tell us about Best Buy
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  Speaker 1: and how did they exceed analyst estimates? Yeah, some good
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  Speaker 1: news in the retail world, which has not had much
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  Speaker 1: of it lately. Uh So they beat the expectations game.
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  Speaker 1: You know that their own forecast for the second quarter,
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  Speaker 1: where that sales would be down as much as two percent,
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  Speaker 1: they actually posted a small gain, which in the world
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  Speaker 1: of retail is a pretty big deal. Um. And then
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  Speaker 1: they said that for the rest of the year they
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  Speaker 1: expect profit to be a little bit higher than they
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  Speaker 1: previously said. So forecast up and they beat expectations in
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  Speaker 1: the quarter. What's really working for them, because I note
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  Speaker 1: that they're best sellers are things like the Amazon Fire
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  Speaker 1: TV stick for forty bucks as well as Madden NFL
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  Speaker 1: seventeen for the PlayStation sixty bucks. Is that where they're
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  Speaker 1: making their money. They it's across the board. I mean
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  Speaker 1: they called out I mean the first of all the week,
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  Speaker 1: part of the market right now is mobile phones and tablets.
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  Speaker 1: So one of the things that happened in the quarter
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  Speaker 1: was that that decline was less than they expected, and
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  Speaker 1: they said they basically are taking more market share from competitors.
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  Speaker 1: But what's really working for them? Um? Yes, things like drones,
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  Speaker 1: wearables like fitbits, all the stuff you do attracts sort
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  Speaker 1: of your health and activity. Um And also four K television,
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  Speaker 1: which is the relatively new high extremely high deaf flat
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  Speaker 1: screen televisions that are you know, priced higher than normal ones.
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  Speaker 1: Talk about wearables for just a moment. For example, of
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  Speaker 1: their Apple watches are on sale, the sport Watch. They're
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  Speaker 1: offering them for fifty dollars, less than the regular price
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  Speaker 1: of three and fifty bucks. Also they're selling obviously the
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  Speaker 1: Samsung wearables as well as the Samsung virtual reality gear.
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  Speaker 1: Are they hurting Apple sales by offering these things at
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  Speaker 1: a discount? I would I would almost assume, or I
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  Speaker 1: would speculate that Apple is okay in these discounts. That's
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  Speaker 1: why usually these vendor relationships work. I mean, one of
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  Speaker 1: the things about best Buy that's interesting is that, you know,
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  Speaker 1: the turnaround has basically been cutting costs, and now they're
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  Speaker 1: showing some growth, and what the CEO chalk that up
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  Speaker 1: to is, look, we have these really strong relationships with Apple, Microsoft,
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  Speaker 1: Samsung that allows us to have better assortment, better customer
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  Speaker 1: service in the stores. And they see that as as
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  Speaker 1: a big advantage. And you know, if you've looked back
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  Speaker 1: last week, Target said they're like electronic sales were weak
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  Speaker 1: and actually blamed Apple, called out Apples as the weak
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  Speaker 1: link there. So it's it's potentially what's going on here
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  Speaker 1: is best Buy in this sort of brick and mortar
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  Speaker 1: retail world is taking share from Walmart, Target and those competitors.
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  Speaker 1: So you go to best Buy if you're looking for
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  Speaker 1: your d j I Phantom for quad copter, and especially
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  Speaker 1: if you want it in in white. But what does
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  Speaker 1: it tell you when they're offering you know, like two
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  Speaker 1: hundred dollars off these things? Are they trying to just
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  Speaker 1: move them out of the store or is it just
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  Speaker 1: to lure you into the store so that then they
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  Speaker 1: can upsell you maybe to a five dollar uh you
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  Speaker 1: know version of a drone. Yeah, true, yeah, they they
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  Speaker 1: are probably it's probably both fronts, but more likely it's
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  Speaker 1: to get people in the door. If it's a hot item,
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  Speaker 1: put a little dis kond on and get someone in
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  Speaker 1: the door. But also this is August, this is when
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  Speaker 1: a lot of inventors being cleared. Um. Also, I mean
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  Speaker 1: it's basically back to school. It's just is starting now too,
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  Speaker 1: So it could be you know, claianuce inventory for back
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  Speaker 1: to school. Um. But again, you know Best Buy, it's
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  Speaker 1: the big question mark has been can they return to growth?
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  Speaker 1: Can they return to growth? And they've grown their comparable
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  Speaker 1: store sales six out of the past eight quarters, which
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  Speaker 1: you know, you wouldn't have expected two years ago, you
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  Speaker 1: wouldn't have expected that. So it's it's it seems like
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  Speaker 1: the right path. And they did say that, you know,
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  Speaker 1: they thought the first half was gonna be a little
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  Speaker 1: bit down as far as sales, and they show growth
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  Speaker 1: in the second half. Now they have this growth in
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  Speaker 1: the second quarter, they have you know, what looks like
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  Speaker 1: a bullish quarter or second half ahead of them. One
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  Speaker 1: deg reason is the new iPhone coming out, the iPhone
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  Speaker 1: perhaps going to be unveiled in September. Yeah, I mean
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  Speaker 1: most speculation in September. You know Best buy one comment
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  Speaker 1: on that today. But a lot of their business been
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  Speaker 1: driven by product cycles. So when there's a new phone
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  Speaker 1: that is hot, or like when the Tabot sort of
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  Speaker 1: craze happened. Best Buy has been did well, but what
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  Speaker 1: we saw this quarter was that well most of the
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  Speaker 1: market was down in the US and a lot of
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  Speaker 1: the electronics categories best Buy wasn't um which is a
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  Speaker 1: pretty positive sign. Thus one of the reasons why the
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  Speaker 1: stock is up so much today. The stock up eighteen
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  Speaker 1: percent today, up a nearly thirty percent a year to day.
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  Speaker 1: Based in Richfield in Minnesota, they've got a hundred and
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  Speaker 1: twenty five thousand employees. Are they still cutting staff or
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  Speaker 1: are they done with that? They're they're doing some of that.
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  Speaker 1: They're they're you know, they every quarter they closed some
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  Speaker 1: you know, a couple of stores here there. Um. I
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  Speaker 1: think compared to a year ago, they have twenty last
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  Speaker 1: stores in the US, which is they still have a
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  Speaker 1: boatload of stores in the US. But the big cost
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  Speaker 1: cutting is mainly over the first phase of the turnaround.
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  Speaker 1: When the CEO Uber Jolie came in, he's been there
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  Speaker 1: a little over three years now. Was that too big
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  Speaker 1: of a company to bloated cost rationalize certain parts of
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  Speaker 1: the business. They sold off all their foreign divisions except
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  Speaker 1: for Canada, and now it's can they really show growth
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  Speaker 1: in the US, which is basically their business. Now it's
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  Speaker 1: a forty billion dollar a year business. For you know,
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  Speaker 1: as much as people talk about Amazon everything, I mean,
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  Speaker 1: best Buy still turns out forty billion dollars worth of sales.
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  Speaker 1: I mean, think about that. That's a lot of money.
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  Speaker 1: That's a lot, that's a big that's a big chunk
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  Speaker 1: of the market that they still own. And as far
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  Speaker 1: as if you have a look at the brick and
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  Speaker 1: water environment, they don't have competition. I mean, yes to
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  Speaker 1: people go to Walmart and Costco and and Target to
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  Speaker 1: buy business in the electronics field from Walmart and from
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  Speaker 1: some of those big box retailer and as far as
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  Speaker 1: especially especially electronics chain, they're the only one left. And
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  Speaker 1: as as electronics is, as electronics get more complex, hated,
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  Speaker 1: best Buy is betting that people will need more help,
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  Speaker 1: especially in person the ramping up services that obviously have
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  Speaker 1: the geek squad. So that's sort of the whole play
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  Speaker 1: is to become a services company. So they sell you
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  Speaker 1: a tech product and they help you put in your home,
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  Speaker 1: and then they help service it throughout the life of
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  Speaker 1: the product and they help you get, you know, pick
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  Speaker 1: a new one. My guys out, definitely. I guess everyone't
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  Speaker 1: be in line for as you said, that new iPhone seven.
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  Speaker 1: iPhone seven is gonna be huge. They think, they think, yeah,
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  Speaker 1: good point. Thanks very much, Matt Townsend. He is a
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  Speaker 1: retail reporter for Bloomberg News, telling us about the results
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  Speaker 1: of best Buy. The shares are higher, up by about
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  Speaker 1: eighteen percent today. This is Bloomberg coming up on taking stock.
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