Best Buy probably had a bad holiday season, analyst warns

Best Buy's (BBY) stock may be slightly outperforming the S&P 500 in December, but that doesn't mean it's sitting on bang-up holiday quarter financials amid a more cautious consumer-spending backdrop. Read More...

Best Buy’s (BBY) stock may be slightly outperforming the S&P 500 in December, but that doesn’t mean it’s sitting on bang-up holiday quarter financials amid a more cautious consumer-spending backdrop.

“I think that Best Buy is going to have kind of a tough fourth quarter. But I think everyone sort of knows that. I mean, one of the issues that Best Buy is dealing with, aside from the macroeconomic headwinds, is the fact that you did have this very significant demand pull forward in 2020 and 2021 due to the pandemic,” Loop Capital analyst Anthony Chukumba told Yahoo Finance Live (video above).

Indeed, most signs point to a lackluster fourth quarter from the electronics retailer.

November retail sales disappointed the market, with pressure seen in big-ticket categories such as electronics.

Separate data this week, from Mastercard’s SpendingPulse report, found that sales of electronics fell 5.3% from Nov. 1 to Dec. 24. The category saw the second-worst sales performance this holiday season, just behind a 5.4% drop for jewelry.

“Inflation altered the way U.S. consumers approached their holiday shopping – from hunting for the best deals to making trade-offs that stretched gift-giving budgets,” Mastercard North America chief economist Michelle Meyer said.

Best Buy itself entered the holidays with minimal sales momentum, at best.

Same-store sales fell in almost all lines of the business in the third quarter. Profit margins tanked in both Best Buy’s domestic and international segments. U.S. and international same-store sales fell 10.5% and 9.3%, respectively, in the third quarter.

Shares of Best Buy are down 21% year to date.

While Chukumba is cautious on Best Buy’s near-term results, the question is whether all recent related bad news is priced into the stock. The long-time retail watcher thinks Best Buy’s stock valuation has perhaps reached a trough.

“Now, here’s the good news in terms of Best Buy shareholders. That’s [a bad fourth quarter] more than priced into the stock, particularly at current valuation levels. So I don’t think that Best Buy having a tough holiday selling season is going to be a big surprise to anyone,” Chukumba said.