Can a chain of brick and mortar electronics stores thrive in retail apocalypse and the COVID-19 pandemic? If the chain is Best Buy Co. Inc. (NYSE: BBY) the answer is yes.
For instance, Best Buy’s quarterly gross profits grew from $1.946 billion on 30 April 2020 to $2.695 billion on 30 April 2021. Similarly, the quarterly operating income grew from $229 million to $769 million in the same period.
Notably, Best Buy’s quarterly revenues grew from $8.562 billion on 30 April 2020 to $11.637 billion on 30 April 2021. Incredibly, the quarterly revenues rose to $16.937 billion on 31 January 2021. Thus, Best Buy’s quarterly revenues grew by $3.075 during the pandemic year.
Moreover, Stockrow estimates Best Buy’s revenues grew by an astounding 35.91% in the quarter ending on 30 April 2021. In contrast, those revenues shrank by 6.34% in the quarter ending on 30 April 2020 and grew by 24.39% in the quarter ending on 31 October 2020.
Incredibly, Insider Intelligence estimates that Best Buy’s e-commerce business grew by 135.6% in 2020. Consequently Best Buy rose to the number five slot in Insider Intelligence’s list of Top 10 online retailers in the United States. Insider Intelligence estimates Best Buy’s 2020 online sales at $18 billion.
How Much Money is Best Buy Making?
Best Buy (BBY) is generating less cash. Notably, Best Buy’s quarterly operating cash flow fell from $827 million on 30 April 2020 to $105 million on 30 April 2021.
Conversely, that quarterly operating cash flow rose to $2.961 billion on 31 July 2020 and $1.02 billion on 31 December 2020. In contrast, the quarterly ending cash flow rose from $4.035 billion on 30 April 2020 to $4.993 billion on 30 April 2021.
Impressively, the quarterly ending cash flow grew last quarter without borrowing money. Best Buy reported a quarterly financing cash flow of $1.049 billion in the quarter ending on 30 April 2020 and -$1.089 billion on 30 April 2021.
Consequently, Best Buy’s total debt fell from $5.303 billion on 30 April 2020 to $3.991 billion on 31 April 2021. Thus, Best Buy cut its debt by $1.312 billion during a pandemic. Therefore, Best Buy is thriving in the pandemic.
Why is Best Buy Thriving in the Pandemic?
I think Best Buy is thriving because people are spending more time at home with their toys and devices.
In fact, Best Buy sells everything the modern American household needs to survive the pandemic. For example, the 65 inch LED TV set, the Apple Air Pods, the Insigna 5 Quart Digital Air Fryer, Lenovo laptops, the Bose Smart Soundbar 300 with Voice Control, Bluetooth, and Wireless, the Wireless noise-canceling 700 Bose headphones, the Xbox Series X/S, the Play Station 5, the Nintendo Switch, the iBUYPower Slate MR Gaming Desktop, the NVIDIA GeoForce RTX 3080 video card, the Viking Dishwasher, and an iRobot vacuum to clean your floors.
In addition, Best Buy can have Geek Squad install those toys in your home. Thus, the soccer mom can order all electronics her family wants from Best Buy without leaving the house.
How Best Buy Thrives in the Retail Apocalypse
Best Buy (NYSE: BBY) operated 977 Best Buy stores, 21 Pacific Sales stores, and 11 outlet stores in 2020, Statista estimates. Best Buy makes online shopping easy with ready-in-one hour curbside pickup, free next-day delivery on thousands of items, and same day delivery by 9 p.m. in some markets.
Moreover, Bestbuy.com was the second most popular online electronics store in the United States with $16.713 billion in online sales in 2019, ecommerceDB estimates. However, Best Buy has far to go to match Amazon (AMZN) which sold $61.356 billion in electronics and media in 2019.
I think Best Buy is one of the few brick and mortar retailers that can resist the retail apocalypse. Best Buy resists the retail apocalypse by offering a high level of customer service and embracing customer service.
However, I think it will be hard for other retailers to embrace Best Buy’s business model. To explain, Best Buy sells items that require a high level of service and installation. I don’t think that business model will work for toilet paper or beer. Nor will it work for clothing or makeup.
The uniqueness helps Best Buy because other companies could not replicate its business model. Notably, Sears and Radio Shack destroyed their businesses by failing to offer high levels of customer service. Importantly, Amazon (NASDAQ: AMZN) and Apple (AAPL) have been incapable of duplicating Best Buy’s level of customer service.
What Value Does Best Buy Have?
I think the powerful brand is the greatest value at Best Buy (BBY). In particular, Best Buy’s powerful brand leads to growing share prices.
Mr. Market paid $83.68 for Best Buy on 8 June 2020 and $114.99 for Best Buy on 9 June 2021. I think the share price is rising because many investors see Best Buy as a cheap alternative to Amazon. Mr. Market paid $3.194 for AMZN on 7 June 2021.
I think Best Buy has some similarities to Amazon. For instance, Best Buy had $4.338 billion in cash and short-term investments on 30 April 2021. Hence, Best Buy has a high level of cash for a brick and mortar retailer. The cash and short-term investments grew from $4.134 billion on 30 April 2020.
Best Buy has a High Margin of Safety
Additionally, Best Buy’s assets are growing. For instance, Best Buy’s Total Assets grew from $15.605 billion on 30 April 2020 to $17.705 billion on 30 April 2021.
I think Best Buy (BBY) offers enormous value for a brick and mortar retailer and that value is growing. Importantly, Best Buy has a high margin of safety because of all the cash it accumulates and the growth.
I think $114.99 is a reasonable price for BBY in the current market. I consider Best Buy a value investment because of all the cash and growth.
Appealingly, Best Buy will pay a 70₵ quarterly dividend on 8 July 2021. That dividend grew from 55₵ on 14 December 2020. Overall, Best Buy offered a forward annualized dividend of $2.80 and a dividend yield of 2.42% on 7 June 2021.
In conclusion, I consider, Best Buy a value stock in retail because it can thrive during catastrophes including the Retail Apocalypse and the COVID-19 pandemic. Since we are in living in an age of catastrophes, I predict Best Buy will continue to thrive and grow as other brick and mortar retailers die.
Originally published at https://marketmadhouse.com on June 9, 2021.
