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Strategies & Market Trends : Short Selling, Dark Side, Bubble Busting Laboratory

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To: ild who wrote (211)	12/12/2005 1:27:15 PM
From: ild	Read Replies (1) of 361

From GS: Best Buy Company, Inc. EPS (FY Feb) 2006E $2.16, 2007E $2.52 Outperform/Cautious (BBY) $50.16 Circuit City Stores, Inc. EPS (FY Feb) 2006E $0.71, 2007E $1.05 In-Line/Cautious (CC) $21.48 In a dramatic move, Best Buy shifted its promotional offer on TVs from 0% financing over 12-24 mos to 5.9% financing over 48 mos. Takeaways: (1) This reduces promotional costs to BBY, though likely not quite as much as is implied at first glance. (2) The move is consistent with shedding unprofitable customers, a critical tenet of its Customer Centricity program. (3) This acknowledges the higher cost of 0% deals, and the unproductive promotional spiral that has made CE a tough business. (4) The strategy is consistent with BBYs recent business trends; its gross profit comps exceeded CCs in 2Q05 even as comp-store sales growth fell short. By moving proactively, BBY is daring competition to follow; CC, with a thirst for share and a lower ROI hurdle, may not, but we view this bold move favorably for profits, and note that it is reversible if share losses prove excessive. We rate BBY OP/C.

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