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Assessing Best Buy’s Shareholder Returns in 2016

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YTD total returns

On July 5, 2016, leading consumer electronics retailer Best Buy (BBY) delivered a 3% return on a YTD (year-to-date) basis. Among the other specialty retailers, GameStop (GME), Aaron’s (AAN), and Conn’s (CONN) generated YTD returns of -3.9%, -0.8%, and -69.5%, respectively.

Best Buy and its peers have underperformed the S&P 500 Index, which has delivered a 3.4% return since the beginning of 2016.

Total shareholder return takes into account stock price appreciation, dividends, and other income realized during a given period. Best Buy’s stock price has declined by 0.9% on a YTD basis.

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Dividends and share repurchases

On July 5, Best Buy’s current dividend yield was 4.7%. The current dividend yields of peers GameStop and Aaron’s were 5.5% and 0.4%, respectively. Currently, Conn’s does not pay dividends.

In fiscal 1Q17 ended April 30, 2016, the company repurchased 3.3 million shares for $101 million. In February 2016, Best Buy announced its plan to repurchase $1 billion of its shares over a two-year period.

Share repurchases reward shareholders by enhancing the EPS (earnings per share) through a reduction in the number of outstanding shares. In fiscal 1Q17, Best Buy’s cumulative share repurchases favorably impacted its adjusted EPS by $0.04.

The First Trust Consumer Discretionary AlphaDEX ETF (FXD) has 1% exposure to Best Buy.

Is Best Buy losing ground to Amazon?

According to the annual top 100 consumer electronics retailers report released by TWICE (This Week In Consumer Electronics) magazine in May 2016, Best Buy continued to be the top consumer electronics retailer in 2015, with a 3.8% rise in sales touching ~$30.9 billion.

Rival Amazon (AMZN), which ranked third last year, made impressive progress to the number two spot, replacing Walmart (WMT). According to TWICE, Amazon’s consumer electronics sales increased by 28.1% to $23 billion in 2015.

Amazon trailed Best Buy by ~$7 billion in 2015. Given its rapid growth, it is likely that Amazon might replace Best Buy as the top consumer electronics retailer in the near future.

Series overview

In this series, we’ll discuss Best Buy’s initiatives to improve its sales and profitability. We’ll also discuss analyst recommendations for Best Buy’s stock and the return potential over the next 12 months.

The series will conclude with a discussion on the company’s valuation compared to other specialty retailers.

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