One thing that we are not used to as of late is seeing big spikes in Best Buy stock that aren't related to a buyout rumor. The stock gained more than 12% Friday after the company released its holiday sales numbers.
With such a strong move in the stock, you would assume that holiday sales rose sharply over last year's numbers, but that isn't exactly the case. In fact, sales were flat versus last year's holiday season in the U.S. and down 1.4% world-wide.
For most retailers, a flat holiday season would lead to selling, but in Best Buy's case the expectations have been so low that even a flat holiday season is being seen as a positive.
There is also the matter of total revenues, which were down 1.4% company wide.
Perhaps the most disturbing aspect of today's report involved the company's cash flows. The company had previously forecast free cash flows in a range of $850 million to $1.05 billion, but now believes free cash flows for the fiscal year ending February 2 will be closer to $500 million.
A primary reason for the lower free cash flows is the company's increased focus on better training of its employees. In recent years, Best Buy stores have become something of a showroom for consumers who subsequently go home and purchase the products online, and Best Buy realizes that without a better equipped sales team there is no way it will be able to reverse this trend.
In summary, Friday saw flat same store sales in the U.S., world-wide same store sales decline 1.4%, company wide revenues down 1.4%, and a drastic decline in its free cash flows.
And yet the stock rose more than 12%? The numbers do not really seem to add up. So why exactly did the stock rise?
The real reason for today's move is that analysts believe the flat holiday sales figures will be enough to convince billionaire Richard Schulze to make an offer to take the company private.
Schulze is the founder of Best Buy, and has been considering his options to make a bid for the company. In December, Best Buy extended his deadline to make such an offer to allow him time to review how the company performed during the holiday season. Considering that most analysts had predicted to see U.S. sales decline by 3%, a flat season is actually a sign that the company's turnaround plan could be working, and may be enough to convince Schulze to make a bid. That is, of course, if he willing to overlook the lower cash flows.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.