Best Buy Company, Inc.
) reported second-quarter fiscal 2015 adjusted earnings from
continuing operations of 44 cents per share that came miles ahead
of both the Zacks Consensus Estimate of 31 cents and the year-ago
quarter figure of 32 cents per share.
Including one-time items, the company reported quarterly
earnings of 42 cents per share, down from earnings of 69 cents per
share reported in the prior-year quarter.
Total revenue fell 4% to $8,896 million and fell short of the Zacks
Consensus Estimate of $8,968 million. Comparable-store sales
(comps) declined 2.7% compared with a fall of 0.6% in the
Weakness in the consumer electronics industry, stiff competition
from online giantslike Amazon.com Inc. (
) and absence of major product launches has resulted in dwindling
sales. As a result, shares lost 3.7% of their value in the
Further, gross profit slid 16.4% year over year to $2,055 million
during the quarter due to weak top-line performance. Gross margin
contracted 340 basis points (bps) to 23.1%. However, adjusted
operating margin increased 70 bps to 2.9%.
Nevertheless, Best Buy's Renew Blue strategy continues to gain
traction as domestic comparable online sales increased over 22% in
the quarter driven by the company's "buy online -- ship from store"
and digital marketing capabilities. Under the strategy the company
has achieved an additional $40 million worth of annualized savings
taking the total annualized cost reductions to $900 million. The
company had raised its target of cost reduction to $1 billion at
the end of fiscal 2014.
In addition, the company launched 800 new Samsung and Sony home
theater, 18 Pacific Kitchen and Home and 7 Magnolia Design Center
To combat its dismal financial run, Best Buy had reinforced a
turnaround strategy called the Renew Blue transformation program to
rein in escalating costs and increase online traffic as well as
store conversion rate. Though industry trends do not look
encouraging, we believe this strategy will help the retailer to
bail it out.
segment revenues fell 2.4% to $7,585 million due to a 2% decrease
Comparable online sales rose 22% driven by improved traffic,
increased average order value, and availability of better inventory
due to the company's ship-from-store and online distribution center
Decline in categories like tablets, services and mobile phones ran
down growth witnessed in computing, gaming and appliances.
The segment's adjusted gross profit fell 4.5% to $1,778 million
during the quarter, while adjusted margin came in at 23.4%, down 50
bps due to higher costs related to product warranty, structural
investments and unfavorable impact of new credit card agreement.
segment revenues dropped 12.1% to $1,311 million due to the closure
of big box stores in China in the prior year, a decline of 6.7% in
comps (China, Canada, and Mexico) and unfavorable fluctuations in
foreign exchange rates.
The segment's gross profit declined 16.8% to $277 million in the
quarter while margin shrunk 120 bps to 21.1%, reflecting lower
margin product mix and increased promotional activities.
Other Financial Details
This Zacks Rank #3 (Hold) stock, which competes with Aaron's, Inc.
) and Conns Inc. (
), ended the quarter with cash and cash equivalents of $2,141
million, long-term debt of $1,592 million and total equity of
Anticipating weakness in the sector to persist, management expects
comps to decline in low-single digits in the second half of fiscal
2015. Operating margin would be pressured on account of lingering
Moreover, there was an adjustment related to tax structure in the
first quarter which resulted in accelerated non-cash tax benefit of
$1.01. This benefit is treated periodically but after incorporating
the full-year benefit in the first quarter earnings, management
expected higher tax rate going forward.
Along with other items, this income tax adjustment will affect
earnings in the remaining quarters of fiscal 2015. For the third
quarter, impact will range from flat to fall by a cent. During the
fourth quarter, there would be a negative impact of 9-10 cents on
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
BEST BUY (BBY): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis
AARONS INC (AAN): Free Stock Analysis Report
CONNS INC (CONN): Free Stock Analysis Report
To read this article on Zacks.com click here.