Best Buy Company Inc. (BBY), the leading specialty retailer of consumer electronic products, recently posted better-than-expected fourth-quarter 2012 results. The quarterly earnings of $2.50 a share handily surpassed the Zacks Consensus Estimate of $2.16 and jumped 21% from $2.07 earned in the prior-year quarter.
The company is now treating the results of its closed stores in China, the U.K. and Turkey, coupled with other sold businesses, as discontinued operations. Including the results of discontinued businesses, Best Buy reported earnings of $2.47 per share, up 25% from the prior-year quarter.
However, including one items, the company reported a loss of $4.89 compared with $1.62 in the year ago quarter.
Results in Detail
Richfield, Minnesota-based Best Buy stated that total revenue increased 3.4% year over year to $16,630 million, ahead of the Zacks Consensus Estimate of $16,213 million. Comparable store sales marked a decrease of 2.4%, reflecting an improvement from a decline of 4.7% witnessed in the year-ago quarter.
Including the results of discontinued businesses, Best Buy’s total revenue increased 3% year over year to $16,730.
Adjusted gross profit increased 4% year over year to $4,076 million, whereas gross margin remained flat at 24.5%. Adjusted operating income increased 6% to $1,357 million, whereas operating margin expanded 20 basis points to 8.2%.
Domestic segment revenue increased 4.2% to $12,600 million, reflecting a 21% jump in online revenue and 13% rise in connections. Comparable store sales marked a decline of 2.2% during the quarter, reflecting sales decline in gaming, notebooks, digital imaging and televisions. However, comps of mobile phones jumped 20%, while tablets and eReaders registered a rise of low triple-digits.
Domestic adjusted gross profit increased 3% to $3,034 million during the quarter while gross margin came in at 24.1%.
International revenue crept up 1.1% to $4,030 million, however comparable-store sales decreased 2.9%, reflecting softness in comparable store sales of home theater, gaming and digital imaging in Canada and sluggish connections in Europe. International adjusted gross profit increased 6% to $1,042 million during the quarter while gross margin came in at 25.9%.
Balance Sheet, Share Buybacks & Dividend
Best Buy ended the quarter with cash and cash equivalents of $1,199 million, total long-term debt of $1,685 million, and shareholders’ equity of $4,366 million.
During the quarter, the company bought back approximately 12.8 million shares at a price of $24.76 per share, aggregating $317 million. In fiscal 2012, the company repurchased 54.6 million shares at an average price of $27.47 per share, aggregating $1.5 billion.
Moreover, the company also paid a quarterly dividend of 16 cents per share, aggregating $56 million.
Transformation to Drive Growth
Best Buy announced string of strategic measures to enhance its long-term profitability. With its multi-channel strategy, the company intends to enhance its store formats while increasing its global footprints.
The company will put up shutters on some big box stores which are not contributing to its growth, while modifications of others are also on the cards. The company announced the closing of 50 U.S. Best Buy big box stores in fiscal 2013.
Best Buy, through its cost reduction program, intends to generate $800 million in costs saving by fiscal 2015, including $250 million in fiscal 2013.
The company plans to open 100 U.S. Best Buy Mobile small format stores in fiscal 2013 and intends to increase the total number of such stores to 600-800 by fiscal 2016.
Going forward, Best Buy plans to accelerate the growth of its business in China, coupled with a growth in connections and services and digital capabilities. Best Buy expects to open 50 new Five Star stores in China in fiscal 2013, while it plans to generate $4 billion in sales and increase the store count to 400 – 500 by fiscal 2016.
Best Buy expects to generate a 15% increase in its Domestic online sales in fiscal 2013. The company targets $4 billion online sales by fiscal 2016. Revenue in Domestic segment services category is expected to increase by 10% in fiscal 2013.
Connections in the U.S.are expected to rise by 15% in fiscal 2013, driven by growth in mobile phone, tablets and computing connections.
Best Buy expects fiscal 2013 revenue between $50 billion to $51 billion, while comparable store sales are expected to decline by 2.1%.
Adjusted operating income is expected to decrease in the range of 4% to 11% compared with the prior year results.
Cushioned by the impact of share repurchases of approximately $750 million to $1.0 billion, earnings are forecasted in the range of $3.50 to $3.80, up 3% to 12% from the prior year.
Currently, we have a long-term Neutral rating on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), holds a Zacks #3 Rank that translates into a short-term Hold rating.
BEST BUY (BBY): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment