Best Buy announced its fiscal Q1 earnings yesterday. The story is the opposite of what we saw for CPG earnings. The CPGs reported increase in profit despite losing market share but Best Buy reported decrease in profit despite an increase in market share. The main contributor to the drop in profits – price leakage. In its press release the company said
“ The company noted that comparable store sales in flat-panel televisions were essentially flat versus the prior year as unit increases offset declines in the average selling price.”
Despite selling more units the company brought is less revenue – the reason is the many discounts it made available to induce sales during the down economy. The price waterfall for flat panel TV tells the general story behind Best Buy’s statement regarding decline in selling price. From a list price of $1299 the pocket price, after all discounts and cost of capital to extend free credit to customers, drops by almost 40% to $781.
It is a good sign that the company realized the price leakage. We should expect to see drop in inventories, further drop in revenues but increase in profit from better price realization in the coming months.
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