WEBVTT - Bloomberg's Townsend on Best Buy Boosted By Wearables (Audio)

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<v Speaker 1>I'm Charlie Pellett, the DAL, the SMP, NAZDAK all advancing.

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<v Speaker 1>and that's a Bloomberg Business Flash. This is taking stock

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<v Speaker 1>with Kathleen Hayes and Pin Box on Bloomberg Radio. Shares

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<v Speaker 1>of Best Buy are up more than eighteen percent today.

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<v Speaker 1>Are you happen to be in the market for maybe

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<v Speaker 1>a wearable or video games, tablets, computers, TVs, drones or

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<v Speaker 1>connected home. Here to connect all the dots for us

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<v Speaker 1>as Matt Townsend, retail reporter for Bloomberg News, Matt, thanks

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<v Speaker 1>for coming into the studio. Tell us about Best Buy

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<v Speaker 1>and how did they exceed analyst estimates? Yeah, some good

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<v Speaker 1>news in the retail world, which has not had much

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<v Speaker 1>of it lately. Uh So they beat the expectations game.

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<v Speaker 1>You know that their own forecast for the second quarter,

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<v Speaker 1>where that sales would be down as much as two percent,

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<v Speaker 1>they actually posted a small gain, which in the world

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<v Speaker 1>of retail is a pretty big deal. Um. And then

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<v Speaker 1>they said that for the rest of the year they

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<v Speaker 1>expect profit to be a little bit higher than they

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<v Speaker 1>previously said. So forecast up and they beat expectations in

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<v Speaker 1>the quarter. What's really working for them, because I note

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<v Speaker 1>that they're best sellers are things like the Amazon Fire

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<v Speaker 1>TV stick for forty bucks as well as Madden NFL

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<v Speaker 1>seventeen for the PlayStation sixty bucks. Is that where they're

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<v Speaker 1>making their money. They it's across the board. I mean

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<v Speaker 1>they called out I mean the first of all the week,

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<v Speaker 1>part of the market right now is mobile phones and tablets.

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<v Speaker 1>So one of the things that happened in the quarter

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<v Speaker 1>was that that decline was less than they expected, and

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<v Speaker 1>they said they basically are taking more market share from competitors.

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<v Speaker 1>But what's really working for them? Um? Yes, things like drones,

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<v Speaker 1>wearables like fitbits, all the stuff you do attracts sort

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<v Speaker 1>of your health and activity. Um And also four K television,

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<v Speaker 1>which is the relatively new high extremely high deaf flat

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<v Speaker 1>screen televisions that are you know, priced higher than normal ones.

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<v Speaker 1>Talk about wearables for just a moment. For example, of

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<v Speaker 1>their Apple watches are on sale, the sport Watch. They're

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<v Speaker 1>offering them for fifty dollars, less than the regular price

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<v Speaker 1>of three and fifty bucks. Also they're selling obviously the

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<v Speaker 1>Samsung wearables as well as the Samsung virtual reality gear.

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<v Speaker 1>Are they hurting Apple sales by offering these things at

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<v Speaker 1>a discount? I would I would almost assume, or I

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<v Speaker 1>would speculate that Apple is okay in these discounts. That's

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<v Speaker 1>why usually these vendor relationships work. I mean, one of

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<v Speaker 1>the things about best Buy that's interesting is that, you know,

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<v Speaker 1>the turnaround has basically been cutting costs, and now they're

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<v Speaker 1>showing some growth, and what the CEO chalk that up

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<v Speaker 1>to is, look, we have these really strong relationships with Apple, Microsoft,

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<v Speaker 1>Samsung that allows us to have better assortment, better customer

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<v Speaker 1>service in the stores. And they see that as as

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<v Speaker 1>a big advantage. And you know, if you've looked back

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<v Speaker 1>last week, Target said they're like electronic sales were weak

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<v Speaker 1>and actually blamed Apple, called out Apples as the weak

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<v Speaker 1>link there. So it's it's potentially what's going on here

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<v Speaker 1>is best Buy in this sort of brick and mortar

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<v Speaker 1>retail world is taking share from Walmart, Target and those competitors.

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<v Speaker 1>So you go to best Buy if you're looking for

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<v Speaker 1>your d j I Phantom for quad copter, and especially

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<v Speaker 1>if you want it in in white. But what does

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<v Speaker 1>it tell you when they're offering you know, like two

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<v Speaker 1>hundred dollars off these things? Are they trying to just

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<v Speaker 1>move them out of the store or is it just

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<v Speaker 1>to lure you into the store so that then they

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<v Speaker 1>can upsell you maybe to a five dollar uh you

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<v Speaker 1>know version of a drone. Yeah, true, yeah, they they

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<v Speaker 1>are probably it's probably both fronts, but more likely it's

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<v Speaker 1>to get people in the door. If it's a hot item,

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<v Speaker 1>put a little dis kond on and get someone in

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<v Speaker 1>the door. But also this is August, this is when

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<v Speaker 1>a lot of inventors being cleared. Um. Also, I mean

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<v Speaker 1>it's basically back to school. It's just is starting now too,

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<v Speaker 1>So it could be you know, claianuce inventory for back

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<v Speaker 1>to school. Um. But again, you know Best Buy, it's

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<v Speaker 1>the big question mark has been can they return to growth?

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<v Speaker 1>Can they return to growth? And they've grown their comparable

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<v Speaker 1>store sales six out of the past eight quarters, which

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<v Speaker 1>you know, you wouldn't have expected two years ago, you

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<v Speaker 1>wouldn't have expected that. So it's it's it seems like

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<v Speaker 1>the right path. And they did say that, you know,

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<v Speaker 1>they thought the first half was gonna be a little

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<v Speaker 1>bit down as far as sales, and they show growth

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<v Speaker 1>in the second half. Now they have this growth in

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<v Speaker 1>the second quarter, they have you know, what looks like

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<v Speaker 1>a bullish quarter or second half ahead of them. One

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<v Speaker 1>deg reason is the new iPhone coming out, the iPhone

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<v Speaker 1>perhaps going to be unveiled in September. Yeah, I mean

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<v Speaker 1>most speculation in September. You know Best buy one comment

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<v Speaker 1>on that today. But a lot of their business been

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<v Speaker 1>driven by product cycles. So when there's a new phone

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<v Speaker 1>that is hot, or like when the Tabot sort of

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<v Speaker 1>craze happened. Best Buy has been did well, but what

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<v Speaker 1>we saw this quarter was that well most of the

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<v Speaker 1>market was down in the US and a lot of

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<v Speaker 1>the electronics categories best Buy wasn't um which is a

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<v Speaker 1>pretty positive sign. Thus one of the reasons why the

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<v Speaker 1>stock is up so much today. The stock up eighteen

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<v Speaker 1>percent today, up a nearly thirty percent a year to day.

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<v Speaker 1>Based in Richfield in Minnesota, they've got a hundred and

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<v Speaker 1>twenty five thousand employees. Are they still cutting staff or

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<v Speaker 1>are they done with that? They're they're doing some of that.

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<v Speaker 1>They're they're you know, they every quarter they closed some

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<v Speaker 1>you know, a couple of stores here there. Um. I

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<v Speaker 1>think compared to a year ago, they have twenty last

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<v Speaker 1>stores in the US, which is they still have a

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<v Speaker 1>boatload of stores in the US. But the big cost

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<v Speaker 1>cutting is mainly over the first phase of the turnaround.

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<v Speaker 1>When the CEO Uber Jolie came in, he's been there

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<v Speaker 1>a little over three years now. Was that too big

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<v Speaker 1>of a company to bloated cost rationalize certain parts of

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<v Speaker 1>the business. They sold off all their foreign divisions except

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<v Speaker 1>for Canada, and now it's can they really show growth

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<v Speaker 1>in the US, which is basically their business. Now it's

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<v Speaker 1>a forty billion dollar a year business. For you know,

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<v Speaker 1>as much as people talk about Amazon everything, I mean,

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<v Speaker 1>best Buy still turns out forty billion dollars worth of sales.

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<v Speaker 1>I mean, think about that. That's a lot of money.

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<v Speaker 1>That's a lot, that's a big that's a big chunk

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<v Speaker 1>of the market that they still own. And as far

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<v Speaker 1>as if you have a look at the brick and

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<v Speaker 1>water environment, they don't have competition. I mean, yes to

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<v Speaker 1>people go to Walmart and Costco and and Target to

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<v Speaker 1>buy business in the electronics field from Walmart and from

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<v Speaker 1>some of those big box retailer and as far as

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<v Speaker 1>especially especially electronics chain, they're the only one left. And

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<v Speaker 1>as as electronics is, as electronics get more complex, hated,

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<v Speaker 1>best Buy is betting that people will need more help,

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<v Speaker 1>especially in person the ramping up services that obviously have

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<v Speaker 1>the geek squad. So that's sort of the whole play

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<v Speaker 1>is to become a services company. So they sell you

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<v Speaker 1>a tech product and they help you put in your home,

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<v Speaker 1>and then they help service it throughout the life of

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<v Speaker 1>the product and they help you get, you know, pick

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<v Speaker 1>a new one. My guys out, definitely. I guess everyone't

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<v Speaker 1>be in line for as you said, that new iPhone seven.

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<v Speaker 1>iPhone seven is gonna be huge. They think, they think, yeah,

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<v Speaker 1>good point. Thanks very much, Matt Townsend. He is a

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<v Speaker 1>retail reporter for Bloomberg News, telling us about the results

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<v Speaker 1>of best Buy. The shares are higher, up by about

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<v Speaker 1>eighteen percent today. This is Bloomberg coming up on taking stock.

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<v Speaker 1>We're gonna take stock of commercial real estate in our

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<v Speaker 1>million dollars behind the renovation of the old post office

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