Best Buy Sees Revenue Shrink as Shoppers Shift Online

APA Microsoft Windows store at Best Buy.
By Sruthi Ramakrishnan

Best Buy, the largest U.S. specialty retailer of consumer electronics, reported lower-than-expected revenue for the third straight quarter, as fewer people bought PCs and electronics, and those who did increasingly bought them online.

Best Buy (BBY), shares of which fell 6.7 percent in early trading, said it expected same-store sales to decline in the low-single digits in the second half of the year.

Same-store sales fell 2.7 percent in the second quarter ended Aug. 2, more than the 2.2 percent decline estimated by analysts polled by research firm Consensus Metrix. U.S. same-store sales slipped 2 percent.

Best Buy also said operating margins were likely to remain under pressure due to higher sales of lower-margin items, overall industry softness and discounting in Canada and China.

"We see the margin guides as conservative," J.P. Morgan (JPM) analyst Christopher Horvers wrote in a note, adding the company could benefit from the anticipated iPhone launch and sales of ultra high-definition 4K televisions.

Apple (AAPL) is expected to launch its latest iPhone next month.

Best Buy said it expected continued softness in mobile phone sales ahead of the "highly-anticipated" release of new models.

The company saw encouraging customer response to 4K televisions, but their impact on sales would be "relatively limited" this year, Chief Executive Officer Hubert Joly said on a conference call.

Best Buy said it plans to invest $40 million-$50 million in the second half to improve operations such as shipping and order fulfillment.

"Industry-wide sales are continuing to decline in many of the consumer electronics categories in which we compete," Chief Financial Officer Sharon McCollam said in a statement Tuesday.

Sales of consumer electronics such as TVs and desktop and notebook computers fell 2.5 percent industrywide in the quarter, the company said, citing NPD Group's Weekly Tracking Service. Such items make up about 65 percent of Best Buy's U.S. revenue. (AMZN) reported a 27 percent rise in sales of electronics and general merchandise to $13.28 billion in the quarter ended June 24, with North America sales growing nearly 30 percent to $8.37 billion.

Best Buy's revenue fell 4 percent to $8.89 billion in the second quarter. Analysts on average had expected $8.99 billion, according to Thomson Reuters I/B/E/S.

The company reported a quarterly profit that beat estimates, largely helped by cost cuts.

Joly has removed layers of management, eliminated hundreds of jobs, shut down unprofitable stores and boosted Best Buy's cash reserves since 2012 in an effort to make up for declining sales.

Net income attributable to shareholders fell 45 percent to $146 million, or 42 cents a share, from a year earlier. Year-ago profit included a gain of $229 million from legal settlements. Excluding items, the company earned 44 cents a share from continuing operations, while analysts' had estimated 31 cents.

Best Buy's shares were trading down 4.8 percent at $30.46. Up to Monday's close, the stock had fallen 20 percent since the start of the year.

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Best Buy Sees Revenue Shrink as Shoppers Shift Online
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