Best Buy Posts Profit In Q3, Sees Increasingly Promotional Environment In Q4

(RTTNews) - Consumer electronics retailer Best Buy Co., Inc. (BBY) Tuesday reported a profit for the third quarter, compared to a loss last year, helped by lower expenses even as revenues slipped. Further, the company said it would be facing an increasingly promotional environment in the fourth quarter and the shares fell over 7 percent in pre-market activity.

Net earnings attributable to Best Buy shareholders was $54 million or $0.16 per share compared to a loss of $10 million or $0.03 per share in the previous year.

Net earnings from continuing operations totaled $0.12 per share in the just concluded quarter. On a non-GAAP basis, earnings per share from continuing operations were $0.18.

On average, 25 analysts polled by Thomson Reuters expected earnings per share of $0.11 for the quarter. Analysts' estimates typically exclude one-time items.

Revenue slid to $9.362 billion from $9.381 billion in the prior year. Analysts estimated revenues of $9.36 billion for the quarter.

Hubert Joly, CEO, said, "Our third quarter top-line results make it clear that our focus on delivering our unique customer promises is starting to pay off. It is also clear that our efforts to control costs and to bring greater efficiency to our operations are improving our profitability."

Domestic revenue rose 2.3 percent to $7.85 billion, driven by a comparable store sales increase of 1.7 percent. This growth was despite the short-term disruptions caused by the ongoing rollout of the floor space optimization, the retail deployment of the Windows Stores and the continued rationalization of non-core businesses.

Excluding these impacts, the company estimates domestic comparable store sales would have been about 2 percent.

Growth in mobile phones, appliances and notebooks was partially offset by expected declines in other categories, such as gaming, movies and digital imaging.

Comparable online sales increased 15.1 percent due to increased traffic, a higher average order value, a higher number of online orders in retail stores and higher inventory availability supported by ship-from-store and online distribution center expansion initiatives.

Including new gaming console pre-orders, which will not recognize as revenue until the fourth quarter of fiscal 2014, comparable online demand increased about 20 percent.

International revenue dropped 11.3 percent to $1.52 billion, driven by a comparable store sales decline of 6.4 percent, loss of revenue from closed large format stores and the impact of adverse currency.

Comparable store sales were hurt by lower industry demand for consumer electronics and mobile phone inventory constraints in Canada and the May expiration of government subsidies in China that pulled customer purchases forward into the first half of the year.

Selling, general and administrative expenses increased to $2.048 billion from $2.192 billion in the prior year.

Since the company's second-quarter fiscal 2014 earnings release, Best Buy eliminated $115 million in annualized costs. Along with the $390 million previously announced, the company has eliminated a $505 million in annualized costs.

Like its competitors, Best Buy also will open its stores at 6:00 pm on Thanksgiving Day and keep them open until late evening on Black Friday. This requires increased promotional offers and an incremental investment in store payroll, the firm noted.

Sharon McCollam, Best Buy CFO, said, ''...if our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin.''

For the fourth quarter, Best Buy had previously quantified a negative 40 to 70 basis point impact to last year's non-GAAP operating income rate of 5.7 percent.

As a result of the additional holiday pressures, the company believes it is prudent to narrow this range for the fourth quarter to 60 to 70 basis points.

BBY, which closed at $43.56 on Monday, fell 7.1 percent in pre-market activity to trade at $40.45.