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Assessing Best Buy’s Strategic Initiatives to Boost 3Q16 Sales

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Sales expectations from 3Q16

Best Buy (BBY) is scheduled to announce the results for its fiscal 3Q16, which ended on October 31, 2015, on November 19. The consensus Wall Street analyst estimate for the company’s fiscal 3Q16 revenue is $8.9 billion. The company expects either flat or low single-digit negative revenue growth rate in 3Q16.

In 2Q16, Best Buy’s revenue grew by 0.8%. The company’s same-store sales increased by 3.8% in 2Q16, marking the fourth straight quarter of same-store sales growth.

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Strategic initiatives

Best Buy has been strengthening its relationship with key suppliers by increasing the reach and visibility of its products. In its fiscal 2Q16 conference call, Hubert Joly, Best Buy’s Chair and CEO, stated that the company has been working with Apple (AAPL) to update the latter’s 740 stores-within-a-store Best Buy locations. The revamped larger stores-within-a-store will have new Apple fixtures and more display tables for phones, computers, and tablets. Best Buy’s CEO stated that the company expects to upgrade a total of 520 of these stores by the holiday season.

Best Buy’s CEO also stated that the highly popular Apple Watch were made available in all 1,050 of the big box stores and in ~30 of Best Buy’s mobile stores at the end of September.

Store-within-a-store

To capitalize on the demand for laptops, Best Buy also disclosed its plans to open more Windows stores-within-a-store and to have over 800 such stores ready for the 2015 holiday season. Best Buy has also been expanding the Samsung Electronics (SSNLF) home theater stores-within-a-store, the Sony Corporation (SNE) home theater stores-within-a-store, and the Magnolia Design Center stores-within-a-store. These stores should help enhance the consumer shopping experience for ultra-high definition TVs.

Meanwhile, as part of its efforts to enhance its merchandise, Best Buy has also been opening additional Pacific Kitchen & Home stores-within-a-store. The company opened 35 of the 60 additional Pacific Kitchen & Home stores-within-a-store planned for 2015, increasing its presence to 152. Best Buy also aims to open 225 Samsung Open Houses by the end of 2015, which will house Samsung appliances. The opening of these stores should help address the demand for home appliances, given the improvement in the US housing market, and will likely help boost Best Buy’s sales.

Aside from these merchandising efforts, Best Buy has also been focusing on providing better services through Geek Squad. The Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares Russell 1000 Value Index (IWD) have 0.4% and 0.1% exposure to Best Buy, respectively.

We’ll discuss the company’s profitability in the next part of this series.

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