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On Jan 22, 2014, Zacks Investment Research downgraded Best Buy Co., Inc. (BBY - Analyst Report), the consumer electronics retailer, to a Zacks Rank #5 (Strong Sell). So far, in 2014, the stock has fallen roughly 36%.

Why the Downgrade?

Estimates for Best Buy have shown a downtrend since the company reported its holiday sales results.

Although the company made a remarkable turnaround in 2013 with the stock price rising over four fold, 2014 began on a soft note with the stock crashing 30% in a single day following dismal holiday sales data and the subsequent trimming of guidance, raising concerns over CEO Hubert Joly’s ambitious restructuring strategy.

The company’s sales dropped 2.6% year over year to $11,451 million for the nine weeks ended Jan 4, 2014, while comparable store sales (comps) dropped 0.8% over the same time frame. As per segments, sales at the domestic segment dipped 1.5% to $9,754 million from the prior-year period while comps fell 0.9%. The International segment’s sales waned 8.1% to $1,697 million but comps nudged up 0.1%.

Best Buy held that intense promotional war, which characterized the holiday season, had significantly impacted its margins and thus compelled a downward revision in its operating margin guidance. The company had cut down prices, at the expense of profits, to compete better with peers such as Wal-Mart Stores Inc. (WMT - Analyst Report) and Sears Holdings Corp. (SHLD - Analyst Report).

This Minnesota-based retailer now expects the operating margin to shrink 175–185 basis points (bps) year over year during fourth-quarter fiscal 2014. Moreover, tight supply of key products, lower traffic and weakness in the mobile phones category contributed to the lower-than-expected sales.

The trimmed guidance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that plunged 24.8% to $1.85 per share for fiscal 2013 and roughly 20.9% to $2.23 per share for fiscal 2014 in the past 7 days.

A Stock that Warrants a Look

A better-ranked retail stock that looks promising and is expected to continue with its upbeat performance is Conns Inc. (CONN - Snapshot Report) holding a Zacks Rank #1 (Strong Buy).
 

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