One Societe Generale analyst, who downgraded the stock after the quarter, pointed to a few potential problems: a drop in Best Buy’s domestic gross margins, disappointing international same-store sales and a slowing in the tech product cycles that the company thrives on. They analyst also said that the easy compares from Circuit City’s closing will shrink in 2010, and he worried about competition from Walmart and Amazon.com .
Cramer used his new “Upon Further Review” segment, a second look of sorts at his previous calls, to counter these arguments. The margins slipped because customers are buying lower-margin products, he said, not because the company is discounting merchandise to either outdo competitors or move excess inventory. And as long as gross profit dollars continue to increase, Cramer is OK with a slight decline in gross margins.
Also, an expected rebound in Canada should boost international sales, Cramer said. He highlighted a number of new and exciting tech product cycles as well – Microsoft Windows 7, the mobile Internet, energy-efficient appliances – that will drive revenues. As for competition, Walmart has been losing share to Best Buy in consumer electronics, and Amazon controls just 2% of the online market. Best Buy holds 31%.
Cramer admitted he was wrong to recommend the stock ahead of the quarter, given that shares had sold off post-report the previous two times. But he’s still bullish on BBY, saying it should reach $50 from Wednesday’s close of $41.29.
“We’re getting a great moment to buy more,” Cramer said of the stock’s pullback, “and I think you should do just that.”
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