Why This Company Can't Stop Falling (The Motley Fool)

Best Buy (NYSE: BBY - News) disappointed analysts when it came out with third-quarter profits that were significantly lower than expected because of aggressive pricing and promotional activity. Can the company stay afloat as it tries to keep up with its competitors?

Ringing it up
The retailer's revenues increased by 2% from the previous year's quarter to $12.09 billion. Comparable-store sales, on the other hand, rose by just 0.3%, mainly driven by sales of mobile devices, including tablets, e-readers, appliances, and movies.

Best Buy's aggressive Black Friday promotions, coupled with free shipping for online purchases, caused the company to pay a steep price in the form of a 29% cut in net income from the prior year's quarter. The current figure is $154 million.

When a shopper's paradise becomes a retailer's nightmare
A major reason for Best Buy's poor profits are the aggressive advertising and pricing it adopted to compete with players such as Costco (Nasdaq: COST - News), hhgregg (NYSE: HGG - News), Wal-Mart (NYSE: WMT - News), and especially Amazon.com (Nasdaq: AMZN - News).

In fact, the sector as a whole is seeing more price competition, as retailers push further with more promotions and discounts to attract penny-pinching, price-conscious consumers.

Best Buy's CEO said the company resorted to these measures to shore up revenues and market share. On the bright side, it did result in increased traffic and comparable-store sales, coupled with a significant increase in online revenue growth. However, lower profit was the price the company had to pay.

More competition in the online retailing jungle
Of late, online retailer Amazon has been giving all brick-and-mortar stores a run for their money. Early in December, Amazon promoted a mobile app that buyers could use to get a special discount on Amazon.com if they used the app to scan an item while in a competitor's store. Amazon's clever little scheme not only made customers see the difference in prices but also served as a valuable source of information on retail store prices.

So ultimately, it's promotional efforts like these that are forcing businesses such as Best Buy to slash prices just to preserve market share rather than grow it in any significant way.

As evidence of the effectiveness of its competitors' actions, Best Buy also announced plans to cut down on its big-box store space by 10% during the next five years. I don't think this will be a magic fix for the retailer's problems, though. What it really needs are more traffic and better margins, not necessarily less space.

The Foolish bottom line
Since price competition cannot be done away with, the only way the company can shore up profits is by simply reducing overhead costs and somehow increasing its sales. Shifting most of its emphasis to online retailing could possibly do the trick. However, more powerful players such as Amazon could continue to give Best Buy some very tough competition in that space.

What do you Fools think of the intensely competitive retail sector? Let us know by leaving your comments in the box below. And don't forget to stay up to speed with Best Buy by adding it to your watchlist. It's free and lets you stay up to date with the latest news and analysis for your favorite companies. You can get started today.

Fool contributor Keki Fatakia holds no shares in any of the companies mentioned in this article. The Motley Fool owns shares of Costco Wholesale, Amazon.com, Wal-Mart Stores, and Best Buy.

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Genworth CEO hints at split of company (Reuters)

(Reuters) – Mortgage insurer Genworth Financial (GNW.N) is taking steps to possibly split up the company, said its Chief Executive Michael Fraizer on a post-earnings conference call, sending its shares up 6 percent on Friday afternoon.

Fraizer said it would make sense splitting the company into two, but added that its not a "strategy to execute in the near term."

To enable a possible split, Fraizer said they were thinking of realigning some of their businesses, bringing down debt and "transitioning certain business platforms toward more stand-alone capital structures."

Genworth shares were trading up 5 percent at $8.23 on Friday on the New York Stock Exchange.

(Reporting by Rachel Chitra & Brenton Cordeiro in Bangalore; Editing by Roshni Menon)

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ARM: A British Company Leading the World (The Motley Fool)

By Alan Oscroft, Fool U.K. Alan Oscroft, Fool U.k. – Tue Jul 26, 4:46 pm ET

This article has been adapted from our sister site across the pond, Fool U.K.

So the U.K. is an economic has-been, falling behind the world in tough economic times, and we should sell all our shares and buy gold? Or invest in China?

Think again.

One company at least, ARM Holdings (Nasdaq: ARMH - News), is a world leader in its class. The more desirable mobile phones and tablet computers might come in the form of iPhones and iPads from Apple (Nasdaq: AAPL - News), or Android from Google (Nasdaq: GOOG - News), but it's ARM's processor designs that power them.

In fact, ARM processors are used by all of today's competing smartphone and tablet makers, so whichever comes out tops in the ongoing battle for next generation supremacy, and whichever falls by the wayside, ARM wins.

Strong interim results
The latest figures, released on Tuesday, showed yet another boost. Underlying pre-tax profit for the second quarter, ending June 30, was up 25% to 54.2 million pounds -- blowing away the analysts' consensus forecast of 45.3 million pounds.

That comes from revenues of 118 million pounds, an 18% increase on last year. For the half, overall revenues grew 22% to 234 million pounds, with underlying pre-tax profit coming in 29% ahead at 105 million pounds.

Earnings per share came in at 3p for the quarter and 5.7p for the half (up 27% and 30%, respectively). And for those keeping an eye on the stuff that makes the world go round, ARM generated net cash for the quarter of 46 million pounds (up from 30 million pounds), and 108 million pounds for the half (up from 74 million pounds).

Where's the cash coming from?
Where did all this lovely money come from? Here's what chief executive Warren East, said about it:

"In the first half of 2011, we have seen strong license revenues driven by an increase in design activity around ARM technology across a broad range of end applications. Major semiconductor vendors and consumer electronics companies are making long-term commitments to using ARM technology in their future product developments, underpinning growth in ARM's long-term royalty revenues."

What we're seeing is both strong income from royalties, and good revenues from licensing deals. And it is those licenses that underpin future royalties, so that's good for both the shorter- and longer-term outlook for the company.

ARM tells us that its full-year expectations remain unchanged, but we must not be too complacent -- over the longer term, not everything is guaranteed to be rosy.

Always be cautious
Although the public can't get enough of Apple's products, Nokia (NYSE: NOK - News) is struggling, as is Blackberry maker Research In Motion (Nasdaq: RIMM - News), so though ARM designs will be powering the next generation of winners, there could well be some short-term revenues lost from the also-rans.

Sluggish consumer demand, at least in economically hit Western markets, is not to be ignored either, and the rapid pace at which the fashionable young things cast off last year's phone and get the latest model, is unlikely to continue at its past pace. But that, again, will be relatively short term.

And the far-off giant that is Intel (Nasdaq: INTC - News) is not a slumbering one, and its all-seeing eye is being drawn ever closer to the mobile computing market. So although ARM is currently in a position that looks hard to dislodge, Intel will have competing designs that will have to be reckoned with.

A nice ride so far
However, those cautions aside, ARM has rewarded its shareholders remarkably well in recent years, and the shares are up more than seven-fold since the beginning of 2009.

Whether the current share price is a good value way to get into those rewards is another question, mind, and I don't think they're a bargain right now, being on a prospective P/E of around 50.

When forecast-beating results like these cause the price to fall a couple of percent, it makes me feel things are perhaps looking a bit peaky. I think we do have a good long-term earner here -- I just doubt that now is the best time to be getting in.

Woods and trees
One thing these results do reinforce is that it's not just the general economic climate that matters when looking to invest in good companies, and it is a mistake to make "shares good" or "shares bad" generalizations -- we just need to peer a bit more deeply into the economic woods to identify the strong trees.

Where do you think ARM shares are likely to go next? Please do share your thoughts, below.

Alan doesn't own shares of any companies mentioned. The Motley Fool owns shares of Google and Apple. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Google, Intel, and Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Intel. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

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Mortgage company urges plan for principal cuts (Reuters)

NEW YORK (Reuters) – American Home Mortgage Servicing, one of the largest servicers of subprime mortgages, is urging the U.S. Treasury to organize a plan to boost principal reductions for up to one million homeowners by unlocking loans from securities.

The servicer is asking for amendments to contracts that govern treatment of delinquent loans in mortgage securities. Currently, most contracts don't allow sales of loans prior to foreclosure, and in many cases don't permit a servicer to lower principal when a loan is modified.

American Home contends its proposal could provide a boost to the Obama administration's Home Affordable Modification Program, in which many borrowers failed to qualify for lower mortgage payments because a principal reduction would be needed, but not possible if a loan was tied up in a bond.

The plan's authors include James Lockhart, a former top U.S. housing finance regulator and currently vice chairman at WL Ross & Co, the owner of American Home Mortgage.

There are about $1.25 trillion in loans contained in the so-called private-label mortgage securities packaged by Wall Street during the housing boom. The distressed balance is nearly $400 billion, with half of that representing loans that are both in default and underwater, American Home said.

(Reporting by Al Yoon; Editing by Padraic Cassidy)

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