Best Buy Company, Inc. (BBY), the leading specialty retailer of consumer electronic products, recently reported first-quarter 2011 results that missed Zacks’ expectations, sending shares down $2.53 or 6.2% to $38.52 in early hours trading.
Despite a sustained growth in the top-line, the quarterly earnings of 36 cents a share fell short of the Zacks Consensus Estimate of 50 cents, and also dropped 14.3% from 42 cents delivered in the prior-year quarter. The increase in the top-line was offset by a 6% rise in cost of goods sold and a 12.3% jump in selling, general and administrative expenses.
Best Buy was also able to increase its market share. The company’s domestic market share rose 1% in the quarter. The company has been particularly able to increase its market share since the liquidation of its archrival Circuit City.
Notebook computers, mobile phones and appliances were the strongest categories, offset by softness in gaming, music and movies. Best Buy also notified that it experienced a low-single digit decline in comparable-store sales in televisions. The company indicated that the rise in the sale of television units was offset by falling prices.
Richfield, Minnesota-based Best Buy said that total revenue climbed to $10,787 million, up 6.9% from the prior-year quarter, reflecting the net addition of stores in the last 12 months, a 2.8% increase in comparable-store sales, and favorable impact of foreign currency translation. Comps in the prior-year quarter had declined 6.2%.
Domestic revenue grew 5.3% to $7,923 million reflecting the net addition of new stores in the last 12 months and a 1.9% gain in comparable-store sales. Comps in the prior-year quarter had declined 4.9%.
International revenue soared 11.4% to $2,864 million driven by the net addition of new stores in the last 12 months, a 6.3% gain in comparable-store sales and favorable impact of foreign currency translation. Comps in the prior-year quarter had fallen by 13.9%. Excluding foreign currency translation, international revenue grew 1.4%.
Best Buy Europe posted a 5% increase in comparable-store sales. China reported a 30% gain in comparable-store sales, whereas Canada experienced a 2% fall in comparable-store sales.
Total gross margin expanded by 60 basis points (bps) to 25.9%. Domestic gross margin increased by 60 bps to 25.7% due to the improvement in promotional activities and sustained growth in Best Buy Mobile. International gross margin expanded 30 bps to 26.3%.
Despite lower-than-expected results, management remains optimistic about fiscal 2011 due to the increase in market share, growth in revenue, along with signs of improvement in the retail environment.
The nation’s largest electronics retailer, Best Buy reaffirmed its earnings guidance of $3.45 to $3.60 per share for fiscal year 2011, reflecting an increase of 10% to 14% year-over-year that dovetails with the current Zacks Consensus Estimate of $3.52.
Revenue in fiscal 2011 is expected between $52 billion and $53 billion, an increase of 5% to 7%. Comparable-store sales are expected to rise in the range of 1% to 3%. Management also expects annual operating margin to be 5%.
Best Buy ended the quarter with cash and cash equivalents of $1,239 million, and total long-term debt of $1,287 million, reflecting a debt-to-capitalization ratio of 15.5%. During the quarter under review, the company resumed its share repurchase program, and bought back approximately 2.5 million shares.
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