Best Buy Turns A Profit, And May Have Turned A Corner

Best Buy (NYSE:BBY) isn't dead yet. The once-left-for-dead poster child for showrooming reported on Tuesday (Aug. 20) that it's profitable for the first time in a year, according to Reuters.

Even Best Buy's bad news was good. U.S. same-store sales were down 0.4 percent, but CEO Hubert Joly suggested that would have been slightly positive except for the disruption due to construction of Samsung and Microsoft shops-within-the-stores, since major remodeling disrupts customer traffic.

Online sales were officially up 10.5 percent due to higher traffic and average order value. That's well below the 18.4 percent overall growth in e-commerce, and way below the 30 percent-plus online growth of major chains like Nordstrom and Walmart. But Best Buy also didn't count pre-sales of game systems that haven't been delivered yet. That income would have pushed online growth to 16 percent.

More to the point, a significant number of game-system customers believe that Best Buy will still be around to ship those products. That says a lot a lot about how online customers' view of Best Buy has changed in the year since Joly was hired as CEO. Having Wall Street's confidence is nice—Best Buy's stock has more than tripled since it hit bottom in January, and the chain beat analysts earnings estimates—but getting customers on board is crucial.

So are two of the retailer's key initiatives. (Cost cutting doesn't count as a key initiative. Anybody can mass-produce pink slips.) One is those Samsung and Microsoft shops in Best Buy stores. They represent the chain's first real reaction to its footprint problem: Big-box stores, at least the way they were, just can't justify the amount of floor space they had to pay for. Putting the brand-focused shops in soaks up space that Best Buy has to pay for but can't fill today with once-profitable merchandise like CDs and DVDs.

The other initiative is price matching, which is no longer a joke at Best Buy. The discounts are cutting margins, which makes investors nervous, but they're also pulling in sales—both in-store and online—that Best Buy just wasn't getting before. And while Best Buy may not have completely solved the showrooming problem, it seems to have found a reason for at least some shoppers not to walk out without becoming customers.

For more:

- See this Reuters story
- See this Star Tribune story

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