Best Buy Q3 Profit Surges, Beats View; Shares Up

(RTTNews) - Consumer electronics retailer Best Buy Co. Inc. (BBY) on Thursday reported a 98 percent surge in profit for the third quarter from last year, reflecting higher sales as well as lower costs and expenses. In the pre-market trade, the stock gained more than 8 percent.

Adjusted earnings per share for the quarter beat analysts' expectations. Looking ahead, the company said it was encouraged by the sales trends seen as it enters the holiday season.

Hubert Joly, Best Buy president and CEO of Best Buy, said, "Operationally, this year-over-year improvement was primarily driven by 0.6% revenue growth and the benefits from our Renew Blue and other SG&A cost reduction initiatives, partially offset by strategic pricing investments and the ongoing competitive pressure on our gross profit rate."

Net earnings attributable to Best Buy shareholders for the third quarter were $107.0 million or $0.30 per share, up from $54.0 million or $0.16 per share in the year-ago period.

Excluding certain items, adjusted earnings from continuing operations for the quarter were $0.32 per share, compared with $0.18 per share in the prior-year quarter.

On average, 25 analysts polled by Thomson Reuters expected the company to report earnings of $0.25 per share for the second quarter. Analysts' estimates typically exclude one-time items.

Revenue for the quarter increased to $9.38 billion from $9.33 billion in the same quarter last year. Analysts had a consensus revenue estimate of $9.11 billion.

Comparable sales for the quarter increased 2.2 percent, compared to an increase of 0.3 percent in the year-ago period.

Gross margin for the quarter contracted 40 basis points from last year to 22.7 percent, while operating margin expanded 100 basis points to 2.0 percent.

Selling, general and administrative expenses declined 5 percent from the year-ago period to $1.93 billion.

Best Buy's domestic revenue for the quarter rose 2.3 percent from last year to $7.99 billion, driven by comparable sales growth of 3.2 percent. Domestic online revenue was $601 million and comparable online sales increased 21.6 percent.

Meanwhile, international revenue declined 8 percent to $1.39 billion, primarily driven by the negative impact of foreign currency exchange rate fluctuations, a comparable sales decline of 3.0 percent driven by China, and the loss of revenue from store closures in Canada and China.

Looking ahead, for the fourth quarter, Best Buy now expects near flat year-over-year growth in revenue and comparable sales. Earlier, the company had projected comparable sales to decline in the low-single digits in the fourth quarter.

The Street expects the company to report a 1.6 percent decline in revenue for the quarter to $14.24 billion.

Sharon McCollam, Best Buy EVP, CAO and CFO, said, "As Hubert remarked, the sales trends we are seeing in our business as we enter the fourth quarter are encouraging from a top-line perspective. But to drive these results, similar to Q3, there are internal and external factors that we believe could put pressure on our operating income rate."

Internal factors cited by the company include the increased mix of lower-margin products in its revenue, among others. External factors include an intensely promotional competitive environment and a potential supply chain disruption related to the West Coast port delays.

Further, Best Buy said that since its second-quarter earnings release, Renew Blue annualized cost reductions increased an additional $65 million, bringing the total Renew Blue annualized cost reductions to $965 million.

This $65 million in cost reductions was primarily driven by lower costs associated with returns, replacements and damages, efficiency improvements in the U.S. and Canada, and supply chain efficiencies.

BBY closed Wednesday's trading at $35.54. In Thursday's pre-market activity, the stock was up $3.06 or 8.61 percent to $38.60.