Best Buy Q1 earnings beat the Street, net income slides 12%

Shares of Best Buy stock jumped by as much as 7% Tuesday morning as the company reported results for the first fiscal quarter of 2012 that beat Wall Street’s expectations. In the quarter ending May 28th, Best Buy reported revenue of $10.9 billion, up 1% from the same quarter last year thanks to a 12% increase in online revenue. Gross profit slid 1% year-over-year to $2.77 billion and net income dropped 12% to $136 million, but the Street was expecting more of a hit as competition from online retailers like Amazon picked up. “We’re pleased that our actions improved sales trends within the quarter, with continued double-digit growth online and strong growth of mobile phones and connections,” Best Buy CEO Brian Dunn said in a statement. The company also reaffirmed its fiscal 2012 guidance, saying it expects revenue to fall between $51 billion and $52.5 billion and net income of between $3.30 to $3.55 per share. Analysts expect revenue to total $51.8 billion and EPS to reach $3.46 for the full year. Best Buy’s full press release can be seen below.

Best Buy Reports Fiscal First Quarter Results

Improved sales performance delivered 1.4 percent revenue growth
Share repurchases exceeded $500 million during the quarter
Company’s full year guidance outlook unchanged

Fiscal First Quarter Financial Summary Three Months Ended
(U.S. dollars in millions, except per share amounts) May 28, 2011 May 29, 2010 Change YOY
Revenue $10,940 $10,787 1%
Gross profit $2,768 $2,793 (1%)
SG&A $2,484 $2,480 0%
Operating income $282 $313 (10%)
Diluted EPS $0.35 $0.36 (3%)
Key Metrics:
Comparable store sales % change(1) (1.7%) 2.8%
Gross profit as % of revenue 25.3% 25.9%
SG&A as % of revenue 22.7% 23.0%
Operating income as % of revenue 2.6% 2.9%

Fiscal First Quarter Highlights

  • Strong Domestic mobile phones comparable store sales growth of 28 percent
  • Domestic online revenue growth of 12 percent
  • Domestic connections growth of 20 percent
  • International segment operating income increased significantly year-over-year to $48 million
  • Operating cash flow increased to $1.3 billion, an increase of $1.2 billion over the prior-year period
  • Share repurchases totaled $505 million (16.6 million shares)

MINNEAPOLIS, June 14, 2011 — Best Buy Co., Inc. (NYSE: BBY), a leading multi-channel global retailer and developer of technology products and services, today reported net earnings of $136 million, or $0.35 per diluted share, for its fiscal first quarter ended May 28, 2011, compared with $155 million, or $0.36 per diluted share, for the prior-year period.

“I’d like to thank our employees around the world for their continued efforts to serve our customers and focus on profitable returns for our shareholders,” said Brian J. Dunn, CEO of Best Buy. “We’re pleased that our actions improved sales trends within the quarter, with continued double-digit growth online and strong growth of mobile phones and connections. We also made progress on our goal of enhancing returns by continuing strong share repurchasing activity.”

Revenue

Three Months ended May 28, 2011 Prior-Year Period
($millions) Revenue Change YOY Comp. Store Sales Comp. Store Sales
Domestic $7,859 (0.8%) (2.4%) 1.9%
International 3,081 7.6% 0.4% 6.3%
Total $10,940 1.4% (1.7%) 2.8%

Total Company revenue was $10.9 billion during the quarter, representing a revenue increase of 1.4 percent and included a modest comparable store sales decline of 1.7 percent versus the prior-year period. Within the Domestic segment, areas of comparable store sales growth included mobile phones, mobile computing (including tablets), eReaders, appliances and services. The online channel was key in driving growth, delivering a 12 percent revenue increase in the Domestic segment during the quarter. These sales gains were offset by declines in television, digital imaging, and physical media. Growth in the International segment was led by the continued strong performance of the Five Star business in China, which delivered comparable store sales gains during the period, while Europe and Canada each had modest comparable store sales declines.

Gross Profit

Three Months ended May 28, 2011
($millions) Gross Profit Change YOY % of Revenue
Domestic $1,970 (3%) 25.1%
International 798 6% 25.9%
Total $2,768 (1%) 25.3%

Total Company gross profit dollars declined 1 percent during the quarter, with the Domestic segment gross profit declining 3 percent, largely offset by International segment growth of 6 percent. The Domestic segment gross profit dollar decline was primarily driven by a rate decline of 60 basis points. The primary factors influencing the rate included: increased promotions to drive improved revenue, industry-wide product supply interruptions of digital imaging products due to the events in Japan, higher transportation costs, and the impact of lapping a large annual vendor rebate that occurred in fiscal first quarter 2011. Partially offsetting these factors was the continued favorable mix impact from the strong growth of mobile phones. The International segment gross profit dollar growth of 6 percent during the quarter was driven by revenue and rate strength in the Five Star business, as well as rate improvements in Canada.

Selling, General and Administrative expenses (“SG&A”)

Three Months ended May 28, 2011
($millions) SG&A Change YOY % of Revenue
Domestic $1,736 (0%) 22.1%
International 748 1% 24.3%
Total $2,484 0% 22.7%

Total Company SG&A spending was essentially flat during the quarter, as the net addition of new stores over the past 12 months was offset by timing of project-related costs. SG&A rate improved 30 basis points versus the prior-year period, as the International segment delivered rate improvement of 150 basis points due to cost savings on the European business and the Domestic segment rate was unfavorable 10 basis points.

Operating Income

Three Months ended May 28, 2011
($millions) Op. Income Change YOY % of Revenue
Domestic $234 (21%) 3.0%
International 48 220% 1.5%
Total $282 (10%) 2.6%

Share Repurchases, Dividend, and Operating Cash Flow
During the first quarter of fiscal 2012, the Company repurchased $505 million, or 16.6 million shares of its common stock at an average price of $30.43 per share. The Company has approximately $800 million remaining capacity under its existing share repurchase authorization as of the end of the fiscal first quarter. On May 5, 2011, the Company paid a dividend of $0.15 per common share outstanding, or $58 million in the aggregate. As anticipated and noted within the Company’s fiscal 2011 fourth quarter earnings release, operating cash flow for the first fiscal quarter improved significantly, totaling $1.3 billion versus $169 million in the prior-year period, primarily driven by the timing of several working capital items.

Company Affirms Fiscal 2012 Annual Guidance
The Company reiterated its fiscal 2012 outlook, including its annual net earnings per diluted share guidance of $3.28 to $3.53 and adjusted net earnings per diluted share of $3.30 to $3.55 as provided on March 24, 2011. As stated on March 24, 2011, adjusted diluted EPS guidance excludes the impact of the previously announced restructuring charges and fiscal 2012 share repurchases. The Company expects revenue towards the higher end of its guided range of $51.0 to $52.5 billion. The Company also noted that it continues to expect annual operating income dollars of flat to growth of 7 percent, and expects that first half operating income dollars will be in line with its original expectations. More details regarding Best Buy’s fiscal 2012 guidance is available on the Company’s Web site at www.investors.bestbuy.com.

Conference Call
Best Buy is scheduled to conduct an earnings conference call at 10 a.m. Eastern Time (9 a.m. Central Time) on June 14, 2011. The call is expected to be available on its Web site www.investors.bestbuy.com both live and after the call. More details regarding historical store counts and square footage are available on the Company’s Web site at www.investors.bestbuy.com.

(1) Best Buy’s comparable store sales is comprised of revenue at stores, call centers, and Web sites operating for at least 14 full months as well as  revenue related to other comparable sales channels. Relocated, remodeled and expanded stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of the calculation of the comparable store sales percentage change attributable to the International segment excludes the effect of fluctuations in foreign currency exchange rates. The method of calculating comparable store sales varies across the retail industry. As a result, Best Buy’s method of calculating comparable store sales may not be the same as other retailers’ methods.

Forward-Looking and Cautionary Statements:
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management’s current views and estimates regarding future market conditions, company performance and financial results, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “plan,” “outlook,” and other words and terms of similar meaning. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: general economic conditions, changes in consumer preferences, credit market constraints, acquisitions and development of new businesses, divestitures, product availability, sales volumes, pricing actions and promotional activities of competitors, profit margins, weather, changes in law or regulations, foreign currency fluctuation, availability of suitable real estate locations, the Company’s ability to react to a disaster recovery situation, the impact of labor markets and new product introductions on overall profitability, failure to achieve anticipated benefits of announced transactions and integration challenges relating to new ventures.  A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission, including, but not limited to, Best Buy’s Annual Report on Form 10-K filed with the SEC on April 25, 2011. Best Buy cautions that the foregoing list of important factors is not complete and assumes no obligation to update any forward-looking statement that it may make.

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