Best Buy shares slip 4 percent as revenue, outlook fall short

Shoppers take advantage of Black Friday sales at a Best Buy store in Brooklyn, New York, November 25, 2016.

Brendan McDermid | Reuters
Shoppers take advantage of Black Friday sales at a Best Buy store in Brooklyn, New York, November 25, 2016.

Best Buy shares slipped more than 4 percent before the market opened on Wednesday, as the electronics retailer reported fiscal fourth-quarter revenue and a first-quarter forecast that missed Wall Street’s expectations.

The company also outlined the next phase of its turnaround, which includes increasing its in-home advisory program, accelerating growth in Canada and Mexico, and finding more ways to cut costs.

Here’s how the company did:

—EPS: $1.95 per share, excluding items, versus $1.67 per share expected by Thomson Reuters analysts’ consensus.
—Revenue: $13.48 billion versus $13.62 billion expected by Thomson Reuters.
—US Same-store sales: An 0.9 percent decline versus an 0.4 percent increase expected by FactSet.

One year ago, Best Buy earned $1.53 per share on $13.62 billion in revenue.

Consumer electronics were a soft spot during the holiday quarter, due to price deflation and a lack of major product introductions. However, despite weakness in gaming, tablets and mobile phones, Best Buy has continued to grab share. According to The NPD Group, consumer electronics revenue decreased 2.8 percent in the quarter ended Jan. 28.

The retailer also grew domestic online sales by 17.5 percent and boosted its margin.

“Best Buy’s ability to expand margins in [the fourth quarter] in the face of what we characterized as one of the most promotional holiday seasons we have seen in the last 15 years, especially in Best Buy’s key product categories, is impressive,” Moody’s analyst Charlie O’Shea said.

If it weren’t for pressure from Samsung, which recalled its Galaxy Note7 phone due to a fire risk, Best Buy’s revenue and comparable sales would have recorded an increase, the company noted. On the bottom line, a multi-year expense saving plan helped Best Buy beat forecasts, CEO Hubert Joly said.

The company has taken $350 million in costs out of its business through that initiative, with an end goal of removing $400 million in expenses.

“Our strong bottom-line performance in the fourth quarter was driven by a disciplined promotional strategy, continued optimization of merchandise margins and strong expense management,” Joly said in a statement.

“Domestically, we continued to gain share across the majority of categories and we believe, in aggregate. This was due to the quality of our assortment, a strong advertising and promotional cadence, and a superior customer experience across channels.”

The company’s results were also propped up by share repurchases, which it plans to accelerate.

The chain expects to report earnings per share of 35 cents to 40 cents in the fiscal first quarter, compared with 49 cents expected by Wall Street. Mobile phones will continue to be challenged, pressured by an expected $50 million hit from the Samsung recall and later introductions of new products, CFO Corie Barry said.

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