Short Circuit (By Fayssoux)

Last week, Kroger was absolutely crushed for missing numbers, despite its well deserved status as a “best in breed” retailer in the supermarket category.  Today, Best Buy is missing on some dimensions (same store sales results are underwhelming in light of the general strength of electronics and the elimination of Circuit City as a competitor). It is down 4% or so pre-market.  There is a great deal of optimism built into the prices for best-in-class retailers.  Kroger and Best Buy are showing how fast that optimism can drain out when reality proves modestly worse than expectations.  There is a disconnect between what it is going on in malls and what is priced in retail stocks, imho.

On a separate note, Best Buy highlighted weakness in gaming, movies and music (versus strengths in notebook computers and flat panel TVs).  Gaming companies have been weak; it will be interesting to see if the markets connect the dots and push them down further.  This is not a consumer category that is going to come back strong in my opinion, given changes in behavior (migration online and away form stand-alone devices)