Best Buy Company, Inc. (BBY), a leading specialty retailer of consumer electronic products, recently posted better-than-expected fourth-quarter 2011 results, sending shares up $1.15 or 3.6% to $33.00 in pre-market trading.
The quarterly earnings of $1.98 per share, topped the Zacks Consensus Estimate of $1.84, and rose 8.8% from $1.82 earned in the prior-year quarter. The Zacks Consensus Estimate dipped by a penny prior to the earnings announcement, with one out of 22 analysts following the stock revising the estimate upwards and one analyst lowering the projection in the last 7 days.
On a reported basis, including one-time items, earnings came in at $1.62 per share down 11% from the year-ago quarter.
Management now forecasts fiscal 2012 adjusted earnings in the range of $3.30 to $3.55 per share. The current Zacks Consensus Estimate for fiscal year is $3.56, which lies ahead of the guidance range. Following this we could witness a correction in the Zacks Consensus Estimate in the coming days with analysts adjusting their estimates to better align with the company’s projection.
Adjusted gross profit dropped marginally by 0.3% to $3,967 million, whereas gross margin expanded 40 basis points (bps) to 24.4%. Adjusted operating income slipped 4.4% to $1,227 million, whereas operating margin contracted 30 bps to 7.5%.
Richfield, Minnesota-based company, Best Buy, said that total revenue tumbled 1.8% to $16,256 million from the prior-year quarter, reflecting a 4.6% fall registered in comparable-store sales, offset by the net addition of stores in the last 12 months. Comps in the prior-year quarter had rose 7%.
The total revenue also fell short of the Zacks Consensus Estimate of $16,355 million. For fiscal 2012, Best Buy projected revenue between $51 billion and $52.5 billion, reflecting an increase of 1% to 4%, and assumed comparable-store sales to be flat to a 3% decline.
Domestic segment revenue dropped 3.7% to $12,117 million due to a fall of 5.5% in comparable-store sales, offset by the addition of new stores in the last 12 months. Comps in the prior-year quarter had increased 7.4%. Domestic gross margin expanded 90 bps to 24.5% on an adjusted basis, due to sustained growth in Best Buy Mobile.
The Domestic segment registered a low double-digit fall in comparable-store sales for televisions, and entertainment hardware and software. The segment also witnessed a mid single-digit decline in comparable-store sales in mobile computing. Best Buy notified that it experienced a low double-digit increase in comparable-store sales in mobile phones. Domestic online revenue jumped 11%.
Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), saw its domestic market share improved marginally on a sequential basis but declined when compared with the prior-year quarter.
International revenue climbed 4.3% to $4,139 million driven by the net addition of new stores in the last 12 months, and favorable impact of foreign currency translation but partially offset by a 1.3% decline in comparable-store sales. Comps in the prior-year quarter had jumped by 5.5%.
Best Buy Europe posted a low single-digit increase in comparable-store sales, whereas Canada experienced a low single-digit decline in comparable-store sales. Five Star business in China witnessed a low single-digit fall in comparable-store sales. International gross margin contracted 120 bps to 24.2%, on an adjusted basis.
Best Buy ended the fiscal 2011 with cash and cash equivalents of $1,103 million, and total long-term debt of $1,152 million, reflecting a debt-to-capitalization ratio of 13.6%, and shareholders’ equity of $7,292 million. During the quarter under review, the company bought back approximately 2 million shares at a price of $35.66 per share, aggregating $70 million. During fiscal 2011, the company repurchased approximately 33 million shares at a price of $36.62 per share, aggregating $1.2 billion.
The company still has $1.3 billion at its disposal under its share repurchase authorization. Management now anticipates capital expenditures of approximately $800 million for fiscal 2012.
Currently, we have a long-term Neutral rating on the stock. Moreover, Best Buy holds a Zacks #3 Rank, which translates into a short-term Hold rating, and correlates with our long-term recommendation.
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