Best Buy Company, Inc
) posted second-quarter fiscal 2014 earnings of 32 cents a share
that surpassed the Zacks Consensus Estimate of 12 cents, and rose
substantially by 23.1% from 26 cents earned in the year-ago
quarter as effective cost management offset soft top-line
Including one-time items and discontinued operations, this
Zacks Rank #2 (Buy) stock reported quarterly earnings of 77 cents
a share sharply up from earnings of 4 cents in the comparable
The company is undergoing through a turnaround program
including price match policy, multi-channel strategy, multi-year
cost reduction program and closing of some big box stores. Best
Buy in the quarter has been succeeded in lowering its cost by $65
million, thereby bringing the total reduction to $390 million out
of $725 million targeted from the North American business.
Management is undertaking competitive pricing strategy and
making investments in areas such as online, mobile, the
multi-channel approach, optimum utilization of floor area and
refurbishment of its website (bestbuy.com) functionality. Best
Buy also initiated "buy online - ship from store" endeavors in 50
Moreover, the company is leaving no stone unturned in wooing
consumers and capturing incremental revenue, as evident from its
strategic initiative of opening "Samsung Experience Shops" within
its stores. Taking the initiatives further, Best Buy also entered
into partnership with
) to roll out "Windows Store" across its 500 outlets in the U.S.
with an additional 100 in Canada.
Best Buy also completed the divestment of its 50% stake in
Best Buy Europe to Carphone Warehouse Group, the joint venture
partner in the same, and received $526 million, net cash plus
$123 million in cash from the sales of shares obtained on account
The move would help this consumer electronic retailer to
concentrate more on its U.S. operations, which has been facing a
stiff competition from industry bellwethers such as
Wal-Mart Stores Inc.
). We believe that the step to offload stake in Best Buy Europe
would augment its return on capital employed.
Coming to the results, total revenue fell 0.4% to $9,300
million, and also fell short of the Zacks Consensus Estimate of
$9,365 million. Comparable-store sales edged down 0.6% compared
with a decline of 3.3% in the prior-year period.
Adjusted gross profit slid 2.5% year over year to $2,205
million during the quarter due to weak top-line performance,
whereas gross margin contracted 50 basis points to 23.7%.
However, adjusted operating income increased 13.8% to $206
million, whereas operating margin expanded 30 basis points to
segment revenue inched up 0.1% to $7,809 million due to the
opening of 57 net new Best Buy Mobile stand-alone outlets, partly
offset by 0.4% decline in comparable store sales owing to the
disruptions as a result of opening of Samsung Experience Shops
and Windows Stores combined with store area optimization.
Domestic online sales came in at $477 million, while
comparable online sales jumped 10.5% because of improved traffic
and increased average order value.
Robust growth in mobile phone and appliances was witnessed
during the quarter. However, this was offset by decline in gaming
and digital imaging.
The segment's adjusted gross profit fell 1.3% to $1,872
million during the quarter, while gross margin came in at 24%,
down 30 basis points due to higher costs associated to product
warranty and increased investments.
segment revenue tumbled 2.9% to $1,491 million because of closure
of 15 big box stores in the prior year in Canada and a decline of
1.8% in comparable-store sales. The drop in comps was due to
sluggish demand for consumer electronics and competitive
environment in Canada but partially offset by rise in demand in
China on the back of promotional strategies.
The International segment's gross profit dipped 8.8% to $333
million during the quarter, while gross margin shrunk 150 basis
points to 22.3%, reflecting lower margin product mix forming part
of revenue generated from China and increased promotional
Other Financial Details
Best Buy ended the quarter with cash and cash equivalents of
$1,910 million, long-term debt of $1,634 million and
shareholders' equity of $3,605 million.
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