Best Buy Disappoints Again - Analyst Blog

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Best Buy Company Inc . ( BBY ), the leading specialty retailer of consumer electronic products, recently posted disappointing third-quarter 2012 results. The quarterly earnings of 47 cents a share missed the Zacks Consensus Estimate of 51 cents and declined 13% from 54 cents earned in the prior-year quarter.

However, on a reported basis, including one-time items, earnings plunged 22% to 42 cents a share.

Results in Detail

Richfield, Minnesota-based Best Buy stated that total revenue increased 2% year over year to $12,099 million. Best Buy marked a trend reversal and registered a 0.3% growth in comparable-store sales versus a decrease of 3.3% witnessed in the year-ago quarter.

However, total revenue also came below of the Zacks Consensus Estimate of $12,127 million.

Gross profit came inched down 1% to $2,944 million, whereas gross margin contracted 80 basis points (bps) to 24.3%. Operating income slipped 15% to $328 million, whereas operating margin contracted 50 bps to 2.7%.

Domestic segment revenue inched up 2% to $8,885 million due to a 0.9% increase in comparable-store sales. Comps in the prior-year quarter had decreased 5%. Domestic gross profit dipped 3% to $2,109 million during the quarter while gross margin came in at 23.7%.

The Domestic segment experienced comparable-store sales growth across mobile phones, mobile computing (including tablets), eReaders, appliances and movies. These were offset by fall witnessed across digital imaging and gaming. However, Domestic online revenue jumped 20%.

It is to be noted that television comparable store sales declined in low single digit, however, sales marked a sequential improvement from prior quarters. Domestic segment mobile phones marked a 9% increase in comparable store sales while connections increased 8%.

International revenue crept up 1% to $3,214 million, however comparable-store sales decreased 1.7% compared with an increase of 2.3% in the prior-year quarter reflecting a decline in comparable store sales of small box stores in Europe. International adjusted gross profit increased 4% to $835 million during the quarter while gross margin came in at 26%.

Balance Sheet, Share Buybacks & Dividend

Best Buy ended the quarter with cash and cash equivalents of $2,392 million, total long-term debt of $1,687 million, and shareholders' equity of $6,376 million.

During the quarter under review, the company bought back approximately 12.6 million shares at a price of $25.47 per share, aggregating $320 million. Year-to-date, the company repurchased 41.8 million shares at an average price of $28.30 per share, aggregating $1.2 billion.

Moreover, the company also paid a quarterly dividend of 16 cents per share, aggregating $58 million.

What Guidance Says?

Best Buy stood by its earlier projection for fiscal 2012 and expects revenue between $51 billion to $52.5 billion, while comparable store sales are expected to remain flat or decline by 3%.

Moreover, management also reiterated its fiscal 2012 adjusted earnings guidance range to $3.35 to $3.65 per share.

Despite of cost cutting measures, gross margin is expected to decline by 50 basis points.

Currently, we have a long-term Neutral rating on the stock. However, Best Buy, which faces competition from Wal-Mart Stores Inc . ( WMT ), holds a Zacks #2 Rank that translates into a short-term Buy rating.

BEST BUY ( BBY ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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