Best Buy Earnings: Investors Take Profits As Growth Slows

Best Buy (NYSE:BBY) stock was off about 3.7 percent in morning trading after reporting first-quarter results ahead of the bell.

Non-GAAP earnings declined 57 percent on the year to $0.32 per share, beating the average estimate of $0.25 per share. Total revenue declined 9.6 percent to $9.38 billion, missing the average estimate of $10.64 billion. Comparable store sales declined 1.3 percent globally and 1.1 percent in the U.S. Online sales in the U.S. were up 16.3 percent. Best Buy reported an 8.6 percent return on invested capital for the quarter, down from 11.3 percent in the year-ago period.

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Apr. 30, 2012 Jul. 31, 2012 Oct. 31, 2012 Jan. 31, 2013 Apr. 30, 2013
Revenue ($) in millions 11,610 10,373 10,753 16,711 9,380
Adjusted Diluted EPS ($) 0.76 0.04 0.03 1.64 0.32

It’s important to point out that the company’s fiscal 2014 first quarter was just 13 weeks long, compared to 14 weeks in the year-ago period. Sharon McCollam, Best Buy EVP, CAO and CFO, commented, “While non-GAAP diluted EPS was better-than-expected, it was below last year. This was primarily driven by (1) one less week during the quarter versus fiscal 2013 and the shift in timing of the Super Bowl; (2) a greater investment in price competitiveness; and (3) the impact of high-velocity product launches that occurred in the first quarter of last year that did not occur this year.”

What’s on the horizon?

Best Buy did not provide forward guidance, but did indicate that the “ongoing investment in price competitiveness that contributed to our gross profit and EPS declines in the first quarter will continue into the second quarter.” On top of these pressures, the cost of developing Samsung (SSNLF.PK) Experience Shops and retooling of brick-and-mortar floor space are “expected to have operational impacts during the second quarter.”

Best Buy reported that since its last earnings report, it has eliminated $175 million in annualized costs ($145 million from SG&A and $30 million from the supply chain. “These reductions are primarily being driven by (1) various efficiency improvements, including the optimization of the organizational structure to reduce costs and enhance accountability; (2) the continued take-out of management layers; and (3) supply chain efficiencies,” the company commented. All told, the company has reduced its annualized costs by $325 million since November 2012.

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The company reiterated its agreement to sell its 50 percent interest in Best Buy Europe for approximately $775 million.

Best Buy Co., Inc. Common Stock Stock Chart - BBY Interactive Chart - Yahoo! Finance

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