Unemployment issues continue to flare up in the U.S. and Best Buy Company, Inc. (BBY) is adding fuel to the fire. These words may sound harsh, but so is the decision of leading specialty retailer of consumer electronic products to hire almost 50% fewer temporary workers this holiday season than the prior-year period.
This holiday season, Best Buy will employ approximately 15,000 seasonal workers and hinted that its permanent staff would work overtime to cover the extra hours, AP reported. By comparison, last year the company had hired 29,000 employees. The sharp decline in Best Buy’s holiday employment does not bring good tidings when the unemployment rate is hovering at around 9%.
Going by the pulse of the economy, we think consumers will remain cautious on their spending this holiday season. This would result in competitive pricing and new products which would attract shoppers. Best Buy plans to promote new smartphones and tablets, including iPhone5, and offer accessories under $100 with improved tech support.
Best Buy, which faces stiff competition from Wal-Mart Stores Inc. (WMT) and Amazon.com Inc. (AMZN), is increasing its expenditure on mobile and online advertising to lure budget-constraint consumers.
We believe that retailing companies will leave no stone unturned to win the hearts of bargain hunters and it definitely remains a wait-and-watch story as to who and by how much, one would attain success in wooing consumers in this distressed economy.
Earlier, Richfield, Minnesota-based Best Buy failed to impress with its second-quarter 2012 results. The company posted weaker-than-expected results, with global economic unrest and cautious consumer behavior weighing on it.
The quarterly earnings of 47 cents a share missed the Zacks Consensus Estimate of 53 cents and plunged 21.7% from 60 cents earned in the prior-year quarter. Management now expects fiscal 2012 adjusted earnings between $3.35 and $3.65 per share.
The company’s share repurchase activity has been providing a cushion to its bottom line. Earlier, management had projected earnings in the range of $3.30 to $3.35 per share.
Best Buy intends to focus more on its profitable sections, such as mobile computing, eReaders and appliances. The company’s International business also provides opportunities for growth.
It expects to strengthen the functions of the Best Buy brand in China with the Five Star division, and expand in the new markets of Mexico and the United Kingdom. However, we still remain concerned about falling comps in televisions, entertainment hardware and software categories, as well as a cautious consumer behavior.
Currently, we maintain our long-term “Neutral” rating on the stock.
