Best Buy Turns To Profit In Q1, Adj. EPS Tops View; Sees Lower Comps In Q2, Q3

(RTTNews) - Consumer electronics retailer Best Buy Co., Inc. (BBY) reported Thursday a profit in its first quarter, compared to a loss last year, mainly reflecting a tax benefit. Adjusted earnings significantly surpassed analysts' estimates on margin strength, despite weak comparable store sales. Looking ahead, the company said it expects comparable sales to be negative in the low-single digits in both the second and third quarters, barring any major product launches.

In pre-market activity, Best Buy stock is losing $1.25 or 4.93 percent, and trading at $24.10.

The retailer, which is also known as the 'big blue box' because of the prominent design on Best Buy stores, said its first-quarter net earnings attributable to shareholders was $461 million or $1.31 per share, as against a loss of $81 million or $0.24 per share last year.

The prior year's results included loss from discontinued operations of $170 million or $0.53 per share, excluding which, earnings from continuing operations would have been $97 million or $0.29 per share.

The latest results included $1.01 per share benefit of income tax effect of Europe legal entity reorganization. This was partly offset by asset impairment charges of $0.02 per share and restructuring charges of $0.01 per share. The prior year's results included asset impairment charges of $0.02 per share and restructuring charges of $0.01 per share.

Adjusted earnings were $0.33 per share, compared to last year's adjusted earnings from continuing operations of $0.32 per share.

On average, 24 analysts polled by Thomson Reuters expected earnings of $0.20 per share for the quarter. Analysts' estimates typically exclude one-time items.

Adjusted operating income margin was 2.3 percent, 30 basis points higher than a year ago, mainly reflecting cost reduction, partially offset by a 75-basis point decline in gross profit rate, despite the execution of Renew Blue initiatives.

The company's revenues declined to $9.035 billion from the prior year's $9.347 billion, while analysts estimated revenues of $9.21 billion. Comparable sales declined 1.9 percent, compared to a 1.4 percent drop a year ago.

Domestic revenue declined 2.1 percent mainly on 1.3 percent decline in comparable sales. The segmental revenue reflects the continued decline in the Consumer Electronics industry, along with less favorable ongoing economics of the new credit card agreement. Domestic comparable online sales, however, climbed 29.2 percent.

International revenue fell 10.5 percent with a comparable sales decline of 5.8 percent due to weak sales at Canada, China and Mexico, and the negative foreign currency impact.

Looking ahead, Sharon McCollam, Best Buy EVP, CAO and CFO, said, "As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete. We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly-anticipated new product launches."

The company added that the first-quarter tax benefit would result in higher income tax rate going forward, and will impact fiscal 2015 quarterly earnings. The company expects flat to positive $0.01 per share impact in the second quarter, flat to negative $0.01 per share impact in the third quarter, and negative $0.09 to $0.10 per share impact in the fourth quarter.