Best Buy Cheers Investors: E-commerce Hogging Limelight

Not all stocks are losing investors’ favor in the wake of coronavirus perils. Some are delighting investors with higher returns and robust initiatives. Best Buy Co., Inc. BBY is among those companies that are making extraordinary efforts to survive amid crisis. To tackle coronavirus-induced challenges, Best Buy has temporarily shifted its stores to a contactless curbside service-only operating model, which has worked wonders for it. As of now also, when stores are reopening, a majority of the company’s stores are still functioning on the curbside-only model.

Impressively, the Richfield, MN-based company has seen its shares surge 59.3% in the past three months, crushing the broader S&P 500 Index’s 34.5% rise and the Retail-Wholesale sector’s 38.7% growth. Shares of Best Buy are ahead of its industry that has grown 47.1%. A VGM Score of B further justifies the stock’s bull run.

Delving Deep

Best Buy’s quick shift to the curbside-only operating model has helped the company retain nearly 80% of last year’s sales over the last six weeks of first-quarter fiscal 2021 despite store closures. Impressively, customer satisfaction scores for curbside pickup remained robust, significantly contributing to the company’s domestic online growth of 155.4% to $3.34 billion in the said period. As a percentage of overall domestic revenues, online revenues grew to 42.2% compared with 15.4% in the prior-year quarter.

Starting fiscal second quarter, the company began operating stores, following strict social-distancing practices and use of protective gear. It has been boosting shoppers’ experience through physical shopping with curbside pickup and in-store consultation process. At its first-quarter earnings released on May 21, the consumer electronics retailer said that nearly 70% of its stores are operating in this format. Moreover, management has been evaluating additional changes, including increasing store hours and opening some stores beyond the current appointment-only model. It is also focused on improving its buy online, pickup-in-store services.

Impressively, curbside pickup is stealing the show now by attracting more customers and offering safe shopping procedures, thus minimizing physical contact and inside-store hassles. In fact, this has become an effective way to meet customers’ demands, and has been boosting sales. Retailers like Walmart WMT, Kroger KR and Sprouts Farmers SFM have also been benefiting from this model. Walmart’s Sam’s Club division is the latest to jump on the bandwagon.

Coming to Best Buy, its Building the New Blue initiative, which focuses on pursuing growth opportunities, better execution in key areas, cost containment and investing in people and systems, is also boding well alongside the Total Tech Support program and healthcare technology business.

Wrapping Up

Higher cost of investments toward technology is undoubtedly putting pressure on Best Buy’s margins, but we believe the woes will heal in the future given the company’s tech-agnostic efforts and other well-defined initiatives. Best Buy’s goal of generating $50 billion revenues by fiscal 2025 looks achievable. In fiscal 2020, Best Buy reported enterprise revenues of $43.6 billion. The retailer displays a Zacks Rank of #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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