Is the Best Buy Crash an Overreaction to the Retail "Crime Wave"?
Electronics retailer Best Buy (NYSE: BBY) got slammed in the stock market after release of its third-quarter earnings report on Nov. 23 that revealed some potentially alarming trends. Up until then, the company had enjoyed a nice bull run with its stock climbing some 40% for the year. However, with organized crime actually significant enough to reduce margins and with the company leaving its guidance largely unchanged, the stock plunged in response.
Here's why the market may be overreacting, but also why caution is probably wise.
In the first half of September, grocery and pharmacy chain Kroger (NYSE: KR) revealed that a considerable amount of merchandise was walking out the door of many locations without visiting the checkout lane first. Theft (known as "shrinkage") had reduced Kroger's margin, according to CEO Rodney McMullen, accounting for 15 out of a 60-basis-point gross margin drop. During Kroger's Q2 earnings call, McMullen remarked on how the shrinkage was "heavily driven by organized crime or at least appears to be."
Source Fool.com
