Best Buy Company Inc.
(BBY) recently reported second quarter 2010 results, which included double-digit growth in the top-line, but a surprise double-digit drop in the bottom-line.

Best Buy’s quarterly earnings of 37 cents per share missed the Zacks Consensus Estimate of 42 cents, and dropped 22.9% year-over-year from 48 cents.

Net earnings fell 21.8% to $158 million, due to the rise in cost of goods sold (up 12.4%), SG&A expenses (up 17.7%), higher effective tax rate (42.8% versus 37.3% in the year-ago quarter), and the strong dollar.

Best Buy has gradually gained market share after its main rival Circuit City went out of business. BBY’s domestic market share rose 2.7% in the quarter.

Notebook computers, phones and flat-panel TVs were the strongest categories, but were offset by softness in gaming, digital cameras, music and movies.

Total revenue climbed 12.5% to $11,022 million, driven by the inclusion of Best Buy Europe’s sales and the net addition of 170 stores, partially offset by a 3.9% decline in comparable store sales and the pull of the stronger dollar. Comps improved after falling 6.2% in the first quarter of 2010.

Domestic revenue ascended 1.7% to $8,274 million, reflecting the net addition of 104 stores and a slight rise in traffic count, partially offset by 3.1% fall in comparable store sales.

International revenue rocketed 64.7% to $2,748 million, driven by the addition of Best Buy Europe and the net addition of 66 stores, partially offset by an 8.3% drop in comparable store sales and the adverse impact of foreign currency translation.

The rise in market share and revenue growth experienced in the first half of 2010, along with signs of improvement in traffic count, prompted management to raise its guidance.

Management now expects earnings per share (EPS) in the range of $2.70 to $3.00 for fiscal year 2010, up from $2.50 to $2.90 predicted earlier. The Zacks Consensus Estimate for the year is $2.85. Revenue for the year is expected in the range of $48 billion to $49 billion, up from the previous forecast of $46.5 billion to $48.5 billion.

Read the full analyst report on “BBY”
Zacks Investment Research