The electronics retailer, Best Buy (BBY, Financial), heads into the holiday season with third quarter earnings that beat the Street expectations and which send the stock climbing up 7% after the earnings release on November 20. Thus, the retailer approaches the month of December with such growth momentum which is expected to show a continuum as we enter into the holiday season.
CEO, Hubert Joly stated during the earnings call – “In the third quarter, our teams delivered positive comparable sales, improved profitability and continued progress in our transformation, as we enter the fourth quarter, we are excited about our holiday plan." Let’s dive into the numbers to assess the performance of Best Buy in the third quarter as well as to ascertain if the customers really have faith on the retailer’s product line.
The brief quarter recap
Total revenue rose 0.5% to $9.38 billion from $9.33 billion reported a year-ago. In fact, this figure surpassed the Wall Street expectations of $9.11 billion as revenue. Sales in the U.S. stores improved 3.2% year-over-year and online retail sales rose by a whopping 21.6%. Increase in total sales was bolstered by better than expected sales of electronic products such as televisions, computers and tablets than immediate competitors, and improved performance in sales of appliances as well as video games and game systems.
The company had started a cost-reduction plan in the 2012 fiscal year under its Renew Blue initiative and in the second year of operation; it has yielded $65 million during this quarter with lower costs from returned products and increased efficiency throughout the retailer’s core operations. This has led to better earnings of $0.32 a share from $0.18 a share noticed a year ago and has also beaten the Street estimates that stood at $0.25 a share for this quarter. Profit jumped to $107 million, up from $54 million last year.
However, the retailer has face some sluggishness in the international sales revenue which dipped 8.4% to $1.4 billion, partly due to fluctuations in currency exchange rates and the closure of stores in China and Japan which led to drag in sales outside the U.S.
But the retailer has plans for the customers coming to its stores during this holiday season. Let’s find out what has been conveyed by the management during the earnings call on this holiday quarter.
The holiday quarter ahead
In the previous year, sales became sluggish during the final quarter and this took a toll on the overall revenue earned in the fiscal year for Best Buy. The retailer has surely learnt important lessons from its failure to keep customers attracted to its stores owing to the severe cold weather experienced last year in the U.S. So, it seems that in this fiscal year, the company does not want to take any further risk and has well-thought strategies in place for the holiday quarter.
The company offers improved in-store experience and better marketing messages for the holiday season which it hopes will create more excitement, compared to last year’s season which was shorter and marked by cold weather nationwide that laid an adverse effect on the sales of the fourth quarter.
Like other major retailers, Best Buy said that it has expanded its ship-from-store option to 1,400 stores till date in this fiscal year, up from 400 locations last year. Another online service that is linked to in-store picking is also gaining momentum for Best Buy and it helps to drive some extra traffic, something many retailers are struggling with as most of their consumers are busy shopping online.
As the online sales has also picked up pace for the electronics retailer, Best Buy’s focus for the holiday quarter is to ship more items from its stores, rather than just a handful of warehouses around the country, in an effort to get packages reach its shoppers quickly mainly in the winter season.
According to the CEO, in the coming months, Best Buy stores will emphasize on sales of new ultra HD televisions, the latest video games systems, smartphones and mobile devices as well as wearables. “We are becoming more of a specialty retailer and must offer our customers a high-touch experience," he said in a statement made during the earnings webcast.
Thus, Best Buy seems to be in perfect shape for the holiday quarter, though the retailer has forecasted somewhat flat comparable sales for the fourth quarter of the fiscal year.
Concluding note
As online competition has intensified for the electronics retailer, it’s taking major steps to keep its top and bottom lines at a decent level in the quarters ahead. With its innovative style of handling the holiday quarter, more footfalls could be expected to happen in the U.S. around the time of Christmas when holiday shoppers will go on a shopping spree. Let’s stay tuned and keep an eye on the store sales reported for the holiday quarter.
