Best Buy Company, Inc. (BBY) posted fourth-quarter fiscal 2014 adjusted earnings of $1.24 per share that surpassed the Zacks Consensus Estimate of $1.01 but was lower than $1.47 earned in the year-ago quarter. The performance was aided by effective cost containment, partly offset by soft top-line performance.
Including one-time items and discontinued operations, the company reported quarterly earnings of 88 cents per share, sharply up from the loss of $1.36 per share reported in the prior-year quarter.
For the full year, Best Buy reported adjusted earnings per share of $2.07, which easily surpassed the Zacks Consensus Estimate of $1.85 but was lower than the year-ago quarter figure of $2.54 per share. Including one-time items, earnings came in at $1.98 per share, sharply up from the loss of 80 cents in the prior-year quarter.
Best Buy is undergoing a turnaround program that includes a price match policy, multi-channel strategy, multi-year cost reduction program and the closure of some big box stores. In the year, under the Renew Blue transformation program, the company achieved $765 million reduction in annualized costs, much ahead of the targeted $725 million. The company now has raised its target of cost reduction to $1 billion.
Management is undertaking a competitive pricing strategy and making investments in areas such as online, mobile and the multi-channel approach. It is also making optimum utilization of floor area and refurbishing the functionality of its website (bestbuy.com). Best Buy extended its “buy online – ship from store” endeavors to more than 1,400 outlets.
Moreover, the company is leaving no stone unturned in wooing consumers and capturing incremental revenues, as evident from its strategic initiative of opening "Samsung Experience Shops" within its stores. Taking the initiatives further, Best Buy entered into partnership with Microsoft Corp. (MSFT) to roll out “Windows Store.” The company has unveiled 1,400 Samsung and 600 Windows stores-within-a-store so far and has completed the first phase of its floor space optimization program.
Best Buy is also divesting its non-core operations, a move that will help this consumer electronic retailer to concentrate more on its core operations, to better compete with bellwethers like Wal-Mart Stores Inc. (WMT) and Amazon.com Inc. (AMZN).
Coming to the results, total revenue fell 3.0% to $14,470 million and lagged the Zacks Consensus Estimate of $14,684 million. For the full year, revenues came in at $42,410 million, down 3.4% year over year and falling short of the Zacks Consensus Estimate of $42,721 million. Comparable-store sales (comps) declined 1.2% compared with a fall of 1.4% in the prior-year period.
Gross profit slid 12.4% year over year to $2,917 million during the quarter due to weak top-line performance, partly offset by decreased cost of goods sold. Gross margin contracted 210 basis points (bps) to 20.2%. However, adjusted operating margin contracted 120 bps to 4.5%.
Segment Details
Domestic segment revenues fell 1.8% to $12,298 million due to 1.2% decrease in comps.
Domestic online sales increased 20%. Comparable online sales rose 25.8% to $1.57 billion driven by improved traffic, increased average order value, along with better inventory availability through the company’s ship-from-store and online distribution center expansion endeavors.
Decline in categories like movies, digital imaging and home theater more than offset the growth witnessed in computing, gaming and appliances.
The segment’s adjusted gross profit fell 12.3% to $2,454 million during the quarter, while gross margin came in at 20.0%, down 230 bps due to higher costs related to product warranty, unfavorable mix of mobile phone service plans and increased investments.
International segment revenues fell 9.6% to $2,172 million due to the closure of big box stores in Canada and China in the prior year, a decline of 1.7% in comps and fluctuations in foreign exchange rates. The decrease in comps was due to sluggish industry trends in Canada and Mexico.
The International segment’s gross profit fell 13.5% to $463 million in the quarter while gross margin shrunk 100 bps to 21.3%, reflecting lower margin product mix and increased promotional activities.
Other Financial Details
Best Buy ended the quarter with cash and cash equivalents of $2,678 million, long-term debt of $1,612 million and shareholders’ equity of $3,989 million.
Other Development
In Feb 2014, Best Buy concluded the sale of mindSHIFT Technologies, which was acquired in Dec 2011.
Outlook
For the first half of fiscal 2015, Best Buy expects revenues and comps to be negative, similar to trends observed in the fourth quarter of fiscal 2014 due to the persistent weakness in the overall consumer electronics category.
Currently, Best Buy carries a Zacks Rank #5 (Strong Sell).
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