Best Buy Company Inc
), the leading specialty retailer of consumer electronic products,
recently posted better-than-expected first-quarter 2013 results.
The quarterly earnings of 72 cents a share handily surpassed the
Zacks Consensus Estimate of 59 cents and increased 11% from 65
cents earned in the prior-year quarter.
However, including one-time items, the company reported earnings
of 47 cents, down 27% from the year-ago quarter.
Result in Detail
Richfield, Minnesota-based Best Buy stated that total revenue
increased 2.1% year over year to $11,610 million. However,
excluding the impact of extra week in the quarter on account of
change in the company's fiscal year, total revenue marked a decline
of 4.3%. The Zacks Consensus Estimate for the quarter was $11,512
Comparable store sales marked a decline of 5.3% compared with a
decrease of 3% in the prior-year period.
Gross profit remained flat at $2,907 million during the quarter,
whereas gross margin remained contracted 70 basis points to 25%.
Adjusted operating income decreased 16% to $389 million, whereas
operating margin shrunk 70 basis points to 3.4%.
Domestic segment revenue increased 5.1% to $8,822 million,
reflecting a 20% jump in online revenue coupled with 11% rise in
both services revenue and connections. Comparable-store sales
marked a decline of 3.7% during the quarter, reflecting sales
decline in gaming, notebooks, digital imaging and televisions.
However, comps of mobile phones jumped 13%, while tablets,
appliances and eReaders registered a healthy growth.
Domestic segment's gross profit increased 4% to $2,233 million
during the quarter, while gross margin came in at 25.3%, down 30
International revenue decreased 6.3% year over year to $2,788
million. However, comparable-store sales decreased 10.5%,
reflecting revenue declines in Five Star business in China.
Moreover, weaker sales of notebooks, home theater and gaming in
Canada negatively impacted the results.
The International segment's gross profit marked a decline of 13%
to $674 million during the quarter, while gross margin came in at
24.2%, down 180 basis points.
Balance Sheet, Share Buybacks & Dividend
Best Buy ended the quarter with cash and cash equivalents of
$1,386 million, total long-term debt of $1,721 million, and
shareholders' equity of $4,315 million.
During the quarter, the company bought back approximately 4.6
million shares for $115 million at a price of $25.07 per share.
Moreover, the company also paid a quarterly dividend of 16 cents
per share, aggregating $55 million.
The company had earlier announced string of strategic measures
to enhance its long-term profitability. With its multi-channel
strategy, the company intends to enhance its store formats while
increasing its global footprints.
The company will shutter some big box stores which are not
contributing to growth, while modifications of others are also on
the cards. The company announced the closing of 50 U.S. Best
Buy big box stores in fiscal 2013, of which 41 stores were closed
during the quarter under review.
Best Buy, through its cost reduction program, intends to
generate $800 million in costs saving by fiscal 2015, including
$250 million in fiscal 2013.
The company plans to open 100 U.S. Best Buy Mobile small format
stores in fiscal 2013 and intends to increase the total number of
such stores to 600-800 by fiscal 2016.
Going forward, Best Buy plans to accelerate the growth of its
business in China coupled with a growth in connections and services
and digital capabilities. Best Buy expects to open 50 new Five Star
stores in China in fiscal 2013, while it plans to generate $4
billion in sales and increase the store count to 400 - 500 by
Best buy expects to generate a 15% increase in its Domestic
online sales in fiscal 2013. The company targets $4 billion online
sales by fiscal 2016. Revenue in Domestic segment services category
is expected to increase by 10% in fiscal 2013.
Connections in the U.S. are expected to rise by 15% in fiscal
2013, driven by growth in mobile phone, tablets and computing
Best Buy expects fiscal 2013 revenue between $50 billion to $51
billion, while comparable store sales are expected to decline by
Adjusted operating income is expected to decrease in the range
of 4% to 11% compared with the prior year results.
Cushioned by the impact of share repurchases of approximately
$750 million to $1.0 billion, the company stood by its earlier
guidance and expects earnings in the range of $3.50 to $3.80, up 3%
to 12% from the prior year. On a GAAP basis, the company projects
earnings between $2.85 and $3.25 per share.
Currently, we have a long-term Neutral recommendation on the
stock. Moreover, Best Buy, which faces competition from
Wal-Mart Stores Inc
), holds a Zacks #3 Rank that translates into a short-term Hold
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