Best Buy Beats Estimates, Warns on Bottom Line

Anyone need a good phonograph…from China. If so, BBY is your place. Ever notice how utterly lost this company is, especially when getting lost inside of their stores of antiquated electronics?

Best Buy just reported decent numbers, but warned for their bottom line going forward.

The company reported solid comps for appliances and a 23% spike in online sales. However, mobile phones, services and computers were abysmal. Most importantly, the companies main source of earnings improvement lies in their share repurchases. They’re blaming Japan’s earthquake for their earnings warning, but slightly offset by their absurd buybacks.

07:11 | BBY | (33.00)
Best Buy beats by $0.09, beats on revs; guides Q2 EPS below consensus, revs above consensus; reaffirms FY17 guidance; CFO Sharon McCollam to step down; Strategic Growth Officer Corie Barry named new CFO

Reports Q1 (Apr) earnings of $0.44 per share, excluding non-recurring items, $0.09 better than the Capital IQ Consensus of $0.35; revenues fell 1.3% year/year to $8.44 bln vs the $8.3 bln Capital IQ Consensus.

Comparable sales were essentially flat (-0.1%) vs. (2)-(1%) guidance against a backdrop where the NPD-reported categories were down 1.9%.

From a merchandising perspective, comparable sales growth in health & wearables, home theater, major appliances and computing was offset by declines in mobile phones, tablets and gaming. As expected, television sales related to the shift of the Super Bowl into Q1 FY17 positively impacted the Domestic segment by ~70 basis points. The company also saw continued revenue declines in services due to investments in services pricing and the reduction of frequency of claims on extended warranties which has reduced repair revenue.

Consumer electronics comps +5.6%; computing and phones -3.5%; entertainment -11.6%; appliances +14.3%; services -10.7%.
Domestic online revenue of $832 million increased 23.9% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 210 basis points to 10.6% versus 8.5% last year.

Co issues guidance for Q2, sees EPS of $0.38-0.42, excluding non-recurring items, vs. $0.50 Capital IQ Consensus Estimate; sees Q2 revs of $8.35-8.45 bln vs. $8.31 bln Capital IQ Consensus Estimate.

“In line with our original expectations, there are two factors impacting our year-over-year non-GAAP EPS guidance for the second quarter. First, we are expecting an approximate $0.03 net negative impact from the lapping of the periodic profit sharing benefit from our services plan portfolio that we received in the second quarter of last year. Second, we are expecting an approximate $0.06 negative impact from the carryover of last September’s services pricing investment. In addition, in digital imaging, we are now expecting an approximate $0.03 to $0.04 negative impact due to the April 2016 earthquake in Japan, which is impacting inventory availability in this high-margin category. Combined, these are putting $0.12 to $0.13 of pressure on Q2 FY17, which will be partially offset by an approximate $0.04 benefit from share repurchases.”

“We are reaffirming our previously provided full year financial outlook which includes ~flat revenue and non-GAAP operating income, with non-GAAP EPS growth [consensus +3.2%] driven by share repurchases. Although we are reporting better-than-expected results today, we are not raising our full year outlook as the first quarter represents less than 15% of full year earnings and at this stage we have no new material information as it relates to product launches throughout the year.”

Sharon McCollam, the company’s chief administrative and chief financial officer, will be stepping down on June 14, 2016. McCollam will remain with the company in an advisory capacity until the end of the fiscal year, January 28, 2017, to ensure a seamless transition. Corie Barry, a 16-year veteran of Best Buy and its current chief strategic growth officer, will become the company’s chief financial officer at the conclusion of Best Buy’s annual shareholder meeting, being held on June 14.

In lieu of these numbers, Citi downgraded BBY to neutral.