Electronics retailing giant Best Buy (
) posted revenues of $14.47 billion in Q4 fiscal 2014, a 3%
decline as compared to the prior year comparable quarter. (Fiscal
years end with January.) Comparable Store Sales for the quarter
declined 1.2%. Both domestic and international revenues
declined. Additionally, the company saw non-GAAP diluted EPS of
$1.24 in Q4, which was better than expected, as it continued to
record cost savings through the Renew Blue program.
Best Buy's gross margin fell by 210 basis points annually to
20.2%. Domestic gross margin was hurt by factors such as
incremental investment in structural and promotional
pricing, negative impact of the new credit card agreement,
increased product warranty-related costs associated with higher
claims frequency in the mobile phone category and lower
attachment rates on mobile service plans. The international gross
profit dipped due to increased promotional activity and a shift to
lower margin products in the Canadian business. However, SG&A
expenses as a % of revenue decreased to 16.1% as compared to 16.9%
in Q3 fiscal 2013. This was attributed to cost savings through the
Renew Blue program, better expense management and reduction in
labor-associated costs at stores. This led to an annual expansion
in operating margins to 3.2% in Q4 fiscal 2014, as compared to a
loss of 1.2% in Q4 fiscal 2013.
See our full analysis for Best Buy
Snapshot Of Q4 2014 Results
Best Buy's sales suffered in the quarter due to declining retail
traffic, intense promotion, fewer holiday shopping days, and severe
weather. In the consumer electronics category, sales were weaker
than expected and the phenomenon of
continued to gain traction among customers who are shifting to the
Domestic revenue declined by 1.8% annually during the quarter,
as a result of a comparable store sales decline of 1.2% (as noted).
Excluding the negative impact due to certain short-term measures,
the comparable stores sales decreased by 0.6% annually.
The growth in computing, appliances and gaming categories was
more than offset by decline in other categories such as digital
imaging, movies and home theater.
The domestic comparable online sales rose by 25.8%, as compared
to 15.1% growth in the previous quarter, owing to factors including
higher traffic, growth in average order value, increased inventory
at the online channel and higher conversion rate on both the core
and mobile sites. We believe this metric will continue to post
strong growth in the future, as Best Buy is taking several measures
to enhance its e-commerce channel.
The international revenue fell by 9.6% on account of factors
such as 1.7% decrease in comparable store sales, store
closures in China and Canada, and adverse currency effects.
Declining industry trends in Canada and Mexico contributed to the
significant drop in comparable stores sales in these markets.
Progress Was Seen On The Renew Blue Program
At the beginning fiscal 2014, Best Buy initiated six key
initiatives under the "Renew Blue" program to turn around the
company. These include: 1) accelerating online growth;
2) enhancing the multi-channel customer experience; 3) increasing
revenue and gross profit per square foot to enhance store space
optimization and merchandising; 4) driving down cost of goods sold
through increased supply chain efficiencies; 5) continuing to
gradually optimize the U.S. real estate portfolio; and, 6) further
reducing SG&A expense as a percent of sales. The company made
progress against each of these strategic initiatives during the
quarter, and will continue to invest in them going forward.
During the quarter, Best Buy saw consumers shifting to the
online channel in large numbers. Every metric that the company uses
to track the growth of this channel showed improvement. As a
result, online sales constituted 12.7% of the total domestic sales,
up from 10% last year. The Net Promoter Score (NPS) which measures
satisfaction levels for both customers that buy and don't buy
products, rose by 300 basis points annually. However, this progress
also came at a price. Best Buy said that since online sales have a
higher mix of lower margin hardware products as compared to
high-margin services and accessories, its profitability was
Optimization of floor space was undertaken by devoting more
space to profitable product categories such as mobile phones and
tablets. In addition, the company realized $200 million in
cost savings for the whole year through reduction in its SG&A
expense. This resulted in total annualized costs savings of
$765 million, which far exceeded the company's target of $725
million in savings.
Our price estimate of $27.84 for Best Buy
is at a 6% premium to the current market price. We will update our
valuation shortly in view of the Q4 2014 earnings release.
See More at
View Interactive Institutional Research
(Powered by Trefis)