CORRECT: UPDATE: Best Buy's 2Q Profit Down 22%; Raises Views
September 15 2009 - 11:30AM
Dow Jones News
Best Buy Inc.'s (BBY) fiscal second-quarter earnings fell a
bigger-than-expected 22% as shoppers snatched up lower-margin
laptop computers and its international business swung to a
loss.
But the largest U.S. consumer-electronics retailer by sales said
it posted additional market-share gains and saw a slight
improvement in traffic in its stores, providing hope for the
holiday season.
It also raised its fiscal-year outlook and said sales trends
improved as the quarter progressed.
Shares fell 2.5% premarket to $39.41 Tuesday on the quarterly
profit miss, but the stock through Monday's close was also up 44%
this year.
"We still like this stock as a market leader, especially now
that Circuit City is gone, but we believe scrutiny of pricing and
margins is likely to increase, which may create some short-term
uncertainty around the stock," RBC Capital Markets analyst Scot
Ciccarelli said in a note to clients Tuesday.
Best Buy now expects earnings of $2.70 to $3 a share on revenue
of $48 billion to $49 billion, with same-store sales off as much as
2%. In March, as the stock market was bottoming, the company
predicted earnings of $2.50 to $2.90 a share, revenue of $46.5
billion to $48.5 billion and a same-store sales decline of up to
5%.
It has been a year since Best Buy rolled out its big push in
wireless phones, so some of the gains it posted last year aren't
repeating, and that showed up in the results. The launch of Apple
Inc.'s (AAPL) new iPhone and several promotions intended to boost
store traffic also hurt the U.S. gross-margin rate, which fell 60
basis points.
Still, Best Buy said its mobile-phone franchise gained market
share in the second quarter. It also claimed share gains in
flat-panel television sets, digital imaging and notebook computers,
which posted a double-digit percentage same-store sales increase in
the U.S.
While consumers have been wary of big-ticket, discretionary
purchases, many analysts have expected back-to-school sales of
personal computers and laptop computers to offset some of the
weakness.
In addition, the demise earlier this year of Circuit City Stores
Inc. (CCTYQ) has sent Best Buy, Wal-Mart Stores Inc. (WMT) and
other players into a race to capture that business.
For the quarter ended Aug. 29, Best Buy reported a profit of
$158 million, or 37 cents a share, down from $202 million, or 48
cents a share, a year earlier.
Revenue increased 12% to $11.02 billion, reflecting the addition
of Best Buy Europe's sales and the addition of 170 net new stores
in the past year. Same-store sales, or sales at stores open at
least 14 months and including Internet sales, fell 3.9%. That was
better than the 5.8% decline expected by analysts surveyed by
Thomson Reuters.
Overall, analysts were looking for earnings of 42 cents a share
on revenue of $10.78 billion.
Gross margin edged up to 24.4% from 24.3% as the higher-margin
phones sold in Europe offset weakness in the U.S.
In the U.S., revenue was up 2% as the company added a net 104
new stores. Same-store sales fell 3.1% as traffic increased
slightly but was more than offset by a reduced average-transaction
size. Best Buy estimated it gained about 2.7 percentage points of
market share as of July 31. Among product categories, U.S.
same-store sales of TVs and other consumer-electronics products
fell 2.4%, sales of computers and home-office products rose 7.3%
and sales of entertainment software plunged 23.4%. TV unit sales
actually increased, but prices continued to fall.
Appliance sales in the U.S. remained weak, falling 10.1% on a
same-store basis.
International revenue soared 65%, on the addition of Best Buy
Europe and the new stores. However, same-store sales dropped 8.3%
as a result of currency-exchange effects and because Europe's sales
figures won't be included in consolidated results for another
quarter. The segment posted an operating loss on expenses tied to
Best Buy Europe, too.
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-948-9145;
maryellen.lloyd@dowjones.com
(Tess Stynes contributed to this article.)
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