Best Buy (BBY) tanking their earning results is indicative of where we are right now, not only as a society but also in the tech sector.
People just don’t have that extra dollar or 2 to fund that iPhone (AAPL) upgrade, and that is why Best Buy sales are so underwhelming.
It isn’t the end of the world, but we need the consumers to stay healthy for the short-term health of the tech sector.
Sure, it is true that a great deal of spend comes from enterprise sources, but that is not the entire economy.
The U.S. economy is held up by consumers, and that isn’t the case in many other economies like China or India.
Get ready for a lukewarm Christmas season, which should manifest itself in some pretty sweet deals for the individual.
At the aggregate level, it looks quite sluggish in the mid-term as electronic retailer Best Buy ponders about how to reverse the dimming outlook.
Best Buy cut its full-year sales forecast and missed revenue targets.
Best Buy expects full-year comparable sales to decline by between 2.5% and 3.5%, compared with its prior expectations of a 1.5% to 3% drop.
Granted, the holiday season is five days shorter than last, so some of the softness is a one-off.
Management did say shoppers are responding to big deals and sales events. Management said it expects the peak in sales during times like Black Friday and Cyber Monday to be higher but the valleys before and after those to be lower.
Best Buy is waiting for a wave of shoppers to replace old devices and upgrade to new, higher-tech ones after an approximately two-year sales slump in the consumer electronics category.
Management said they anticipate this year to be one that brings “increasing industry stabilization.” They also mentioned specifically about Apple’s fresh collection of iPads, as well as artificial intelligence-enabled laptops from Microsoft, will drive sales.
Tariffs could put Best Buy’s sales at risk, too, if they result in higher costs for the company and for customers. President-elect Donald Trump said he would raise tariffs by an additional 10% on all Chinese goods and impose tariffs of 25% on imports from Mexico and Canada.
Artificial intelligence products are nowhere near the shelves of Best Buy, and nobody knows when they will debut.
A.I. continues to be strictly an enterprise build-out with a future use case, which doesn’t help companies like Best Buy and their bottom line.
Apple and its micro-improvements don’t move the needle enough for shoppers to get off the sidelines and splurge.
This type of transitory environment for consumer tech isn’t what investors like to hear.
I also mentioned earlier about the inflation effect of households redirecting funds to essentials like housing, insurance, and food.
Therefore, it is better for investors to stay out of the tech consumables and target the enterprise side of the equation.
I don’t believe the enterprise part of tech needs a reboot of growth is waning, and I am still executing bullish trades in stocks that are exposed to the A.I. story.
However, the times of the “tide lifts all boats” all long gone in the rearview mirror.
Today, I executed another bullish trade in Dell (DELL) on a monster dip of 12%. Weak guidance is another manifestation of stalling tech growth. I will exit this position before the year is over.
