Analyst: Best Buy’s multichannel model proving to be a core strength
Although up against a soft comparative from the prior year, it is fair to say that Best Buy has produced a very robust set of second quarter numbers. The 4.9% increase in domestic sales underlines that the company is more than holding its own in the electricals market and should put pay to the oft repeated fiction that retailers of its ilk will struggle to survive in the era of Amazon.
As much as some of the elevated sales are the result of the exit of players like Hhgregg and the continued store closures of Sears and others, we believe this windfall is only part of the reason for an uptick in fortune. There are underlying reasons for Best Buy's success, many of which have been self-engineered by the company.
One of the most pleasing aspects of the results comes from online where sales advanced by a shade over 31%. This is an acceleration of Best Buy's usually strong growth in the channel, and by our figures means it is taking market share within the digital space. There are plenty of reasons for this success, but foremost among them is a joined-up proposition that allows customers to quickly and easily order products online and collect them in stores.
From our customer data, it is also clear that there are large groups of customers who feel more confident buying online from Best Buy than other e-commerce only merchants, mainly because Best Buy has stores where they can seek advice, resolve problems, and return items if needed. In this sense, Best Buy's multichannel model is proving to be a core strength.
It is certainly true that the continued growth of online changes physical space requirements – not in the sense of whether stores are needed, but in the type, configuration, and format of those stores. On this front, we are encouraged to see that Best Buy is making continual adjustments to its estate where it is appropriate to do so. While stores remain a firm profit center, this pruning of the fleet is a prudent activity that will prevent any longer-term headaches.
The fact that stores are needed is evident in customer data that shows how much shoppers value the advice of Best Buy associates. Naturally, some tech-savvy consumers have no need of this, but there many other segments that do and Best Buy's efforts to improve customer service is paying dividends.
Equally important is a desire to see and experience products before buying them – this applies in particular to larger purchases like televisions and appliances. Here, Best Buy's stores are a valuable asset and this should allow it to withstand the recent decision of Sears to sell some appliance brands via Amazon.
We also applaud Best Buy for engaging with newer technologies like smart home. From our data, we see that there is an appetite among consumers to know more about this sort of technology, and we believe Best Buy is in an ideal position to inform and engage.
Overall we remain confident about Best Buy. The company is well managed and is successfully navigating many of the challenges of retail. The exit of rivals has provided some helpful breathing space, and we do not doubt that there will be further exits over the years ahead. Best Buy is in an ideal position to capitalize on this.
VEREIT acquires Kansas center
VEREIT has acquired a thriving, value-oriented Wichita-area center on behalf of Cole Credit Property Trust V.
The 100,000-sq.-ft. Derby Marketplace in Derby, Kansas, features Ross Dress for Less, TJ Maxx, and Hobby Lobby. It is shadow-anchored by Target and Dillons Marketplace.
Mid-America Real Estate brokered the sale in cooperation with RH Johnson on behalf of the seller, a private developer.
Athletic footwear retailer adopts poison pill; lowers guidance
The Finish Line's board on Monday adopted a shareholders rights plan as the retailer warned of a grim second quarter and a steep decline in sales and profits for the year.
"The board believes that it is in the best interests of Finish Line and our shareholders to adopt a shareholder rights plan given the current market conditions and recent share accumulations,” said Glenn S. Lyon, chairman of Finish Line. “The plan is designed to ensure that the company’s board of directors is able to appropriately consider whether proposals, if any, are in the best interests of all our shareholders. The company remains positioned to fully capture the opportunities we foresee to optimize value for all our shareholders.”
Sports Direct International, a U.K.-based sporting goods retailer, recently increased its interest in Finish Line from 7.9% — as reported in a filing in April — to 17.4%, according to Footwear News. Sports Direct operates 700 stores in the U.K. and continental Europe, and 80 premium lifestyle stores in the U.K., along with a portfolio of brands that include Everlast and Kangol. In June, it acquired Bob's Stores and Eastern Mountain Sports out of bankruptcy.
The rights plan adopted by Finish Line has an expiration date of August 28, 2020, or earlier if shareholder approval of the plan has not been obtained at or before the company’s 2018 Annual Meeting of Shareholders
The move comes on the same day that the retailer announced disappointing preliminary results for its second quarter, ended August 26, 2017, and cut its outlook for the fiscal year ending March 3, 2018. For the second quarter, consolidated net sales fell 3.3% to $469.4 million, driven by a 4.6% decrease in Finish Line same-store sales.
Based on the decline in sales and pressure on gross margin from increased markdowns, the company expects to report second quarter earnings per share in the range of $0.08 to $0.12. The company now expects Finish Line comparable sales to decrease 3% to 5% for the year versus its previous guidance for an increase in the low-single digit range.
Adjusted earnings per share are now expected to be in the range of $0.50 to $0.60 for the 53-week fiscal year ending March 3, 2018, versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 for the fiscal year ended February 25, 2017, which was a 52-week year.
“We believe it is prudent to adjust our outlook as we expect the environment to remain highly competitive and promotional throughout the remainder of the year," said Sam Sato, CEO, Finish Line, which runs approximately 950 branded locations in U.S. malls and shops inside Macy’s department stores. "In light of our disappointing second quarter results and revised projections for fiscal 2018, we will remain very disciplined in managing our expenses and inventories throughout the remainder of the year."
Sato said the company is making good progress "rightsizing" its business to better compete in the current environment.
"In the past 12-months, we’ve made a number of changes that have created a more nimble organization and generated approximately $6 million in annualized savings, and over the past two years we’ve closed approximately 80 underperforming stores," he said. "We remain steadfastly focused on executing our strategic plan to drive increased shareholder value over the longer term.”
The Finish Line's disappointing results echo those of its rival Footlocker. On Aug. 18, the retailer reported a 4.4% drop in net sales, to $1.7 billion, and a 6.6% drop in same-store sales for its second quarter.