Best Buy Company Earnings Point to New High; Forecast Cause for Concern

BestBuy storefront OK
BestBuy storefront OK

Best Buy Co. Inc. (NYSE: BBY) reported second-quarter fiscal 2014 results before markets opened this morning. The big-box retailer of electronics gear reported adjusted diluted earnings per share (EPS) of $0.32 and $9.3 billion in revenues. In the same period a year ago, Best Buy reported EPS of $0.26 on revenue of $9.34 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.12 and $9.13 billion in revenue.

On a GAAP basis, Best Buy posted quarterly EPS of $0.69, which excludes one-time benefits of $0.43 per share related to legal settlements and includes $0.05 per share for a tax benefit related to the sale of its European operations.

At the end of the first quarter, the company's CFO gave a general indication of the things the company would be doing that would have a negative impact on operating income. Those impacts were expected to continue for the rest of the year, and Best Buy has attached some numbers to those expected costs. In the third fiscal quarter, the company expects the impact on operating income to be a negative 90 to 110 basis points. In the fourth quarter the negative impact will be negative 40 to 70 basis points. In fiscal year 2015, which begins in February, the company expects operating income to be down by 60 to 90 basis points in the first quarter, 70 to 100 basis points in the second quarter and 30 to 60 basis points in the third quarter.

In addition, Best Buy expects to see a negative impact in its third and fourth quarters as a result of a "temporary" increase in its mobile warranty costs and the sale of its private-label credit card business by Capital One to Citibank.

The company's CEO said:

As expected, Domestic comparable store sales were down 0.4%. But this was driven by short-term disruptions caused by the retail deployment of the Samsung Experience Shops, Windows Stores, and floor space optimization, as well as our continuing rationalization of non-core businesses. Excluding these impacts, Domestic comparable store sales were flat to slightly positive for the quarter.

Domestic online sales grew by 10.5% in the quarter. The store posted good sales in mobile phones and appliances, but these were partially offset by lower sales of gaming and digital imaging gear.

The overall impact of Best Buy's report is slightly negative. Higher costs going forward coupled with lower revenues and declining margins in the United States. The company continues to struggle, even though it pounded the consensus earnings estimate and beat the revenue estimate.

Shares are up 15% in premarket trading this morning, at $35.37, well above the current 52-week range of $11.20 to $32.17. Thomson Reuters had a consensus analyst price target of around $29.90 before today's results were announced.

Filed under: Retail Tagged: BBY