Best Buy: Worst Retail Environment Ever

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Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen.

Brad Anderson, CEO, Best Buy

In 42 years of retailing, we’ve never seen such difficult times for the consumer.  People are making dramatic changes in how much they spend, and we’re not immune from those forces.

Brian Dunn, COO, Best Buy

This morning’s action is being dominated by an announcement from consumer electronics giant Best Buy (BBY) that the fallout in consumer spending is having a huge impact on them as well.  Best Buy is the largest seller of things like flatscreen TVs, laptops, stereo systems, digital cameras, etc…  Given their size and the kinds of things they sell, they are an excellent barometer of consumer discretionary spending. 

Here’s what they said:

  • US same store sales were down -7.8% in October.
  • Their forecast for overall same store sales for the remaining four months of their fiscal year (November ’08 through February ’09) is -5% to -15%.
  • They lowered their fiscal 2009 EPS forecast from $3.03 (from Sept 16) to a range of $2.30-$2.90.

Following on other retailers reports for October and Starbucks -8% same store sales in its most recent quarter it all adds up to a consumer spending recession the likes of which we might never have seen before.

At the same time, the stock is acting pretty well given the severity of the announcement.  Best Buy shares are off only 6% to $22.50 – on heavy volume.  It looks like the stock will test the 5 1/2 year lows of $20 a share set on October 24 (BBY 6 Month Chart).

The same can be said about the overall market: We’re looking at a retest of the lows from October 10 (840 intraday) and October 27 (848 close).  If those lows can hold, we’re adding even more support to the market at those levels and putting in place a potential bottom.

Disclosure: Top Gun has no position in Best Buy (BBY) shares.

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