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Best Buy (BBY) Tops Q1 Earnings, Stock Down on Tepid View

Best Buy Company, Inc. BBY reported first-quarter fiscal 2017 earnings per share of 44 cents that beat the Zacks Consensus Estimate of 35 cents. The company’s earnings also increased 19% year over year.

Including one-time items and discontinued operations, quarterly earnings per share came in at 70 cents compared with 36 cents in the year-ago quarter.

Revenues of $8,443 million also surpassed the Zacks Consensus Estimate of $8,330 million but dipped 1.3% year over year. Comparable-store sales (comps) were down 0.1% against a rise of 0.6% in the prior-year period.

Adjusted gross profit displayed marginal year-over-year increase to $1,962 million and gross margin expanded 30 basis points (bps) to 23.2%. Adjusted operating profit grew 11.9% to $245 million, while operating margin was up 30 bps to 2.9%.

Segment Details

Domestic segment revenues slipped 0.8% year over year to $7,829 million primarily due to loss of revenue from 13 large format as well as 24 Best Buy Mobile store shut down.

Comparable-online sales surged 23.9% to $832 million. The upside was driven by improved traffic and conversion rates.

The segment’s adjusted gross profit declined 0.3% to $1,803 million during the quarter. Adjusted margin came in at 23.0% as against 22.9% in the prior-year quarter due to effective promotional strategy. Adjusted operating income decreased 1.6% to $246 million but adjusted margin remained flat at 3.1%.

International segment revenues fell 8.1% to $614 million due to brand consolidation and weak performance in Canada as well as unfavourable fluctuations in foreign exchange rates.

The segment’s adjusted gross profit rose 4.6% to $159 million in the quarter and gross margin increased 310bps to 25.9%. Adjusted operating profit came in at $3 million. The company has recorded an operating loss of $27 million in the year-ago period.  

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,845 million, long-term debt of $1,334 million and total equity of $4,426 million.

On Feb 25, 2016, the company’s board of directors announced a plan to repurchase shares worth $1 billion over the next two years. In the fiscal first quarter, the company repurchased 3.2 million shares for $97 million.


For the fiscal second quarter, management forecasts Enterprise revenues between $8.35 billion and $8.45 billion, which represents a decline in the range of 2.1% to 0.9%. Comparable sales are expected to remain flat year over year. Management projects earnings in the range of 38–42 cents per share compared with 49 cents in the prior-year quarter. The current Zacks Consensus Estimate for the fiscal second quarter is pegged at 50 cents. However, the estimates might be revised in the days to come.

Also in the fiscal second quarter, the company expects international revenues to decline 5–10%.

The company’s lower-than-expected guidance disappointed investors as is evident from its shares declining more than 5%.  

Zacks Rank

Best Buy holds a Zacks Rank #2 (Buy). Some other stocks which warrant a look in the retail sector include The Children's Place, Inc. PLCE, Central Garden & Pet Company CENT and Destination XL Group, Inc. DXLG. The Children's Place and Central Garden & Pet hold a Zacks Rank #1 (Strong Buy), while Destination XL Group has a Zacks Rank #2 (Buy).

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