Best Buy (BBY, Financial) reported 1.3% growth in total revenue for the fourth quarter of fiscal 2015 to $14.2 billion due to progress made under the company’s Renew Blue Program and better sales drivers such as large screen televisions and mobile phones. While the figure failed to meet the consensus estimate mark of $14.41 billion, Best Buy’s adjusted earnings from continuing operations for Q4 2015 stood at $1.48 per share, beating both the year-ago quarter’s earnings of $1.20 per share as well as consensus estimate of $1.36 a share. With the company announcing a 21% hike in its quarterly dividend to 23 cents a share, along with a special one-time dividend payout of 51 cents a share, Best Buy shares climbed to $39.91 a share during the day’s trading following the results, and settled at $39.18 at closing bell.
Revenue grows due to robust online sales
Best Buy reported a 2% rise in comparable-store sales during Q4 2015, compared to a 1.3% fall during the year-ago quarter. The company achieved $55 million in additional cost savings during the quarter under its Renew Blue Program, resulting in an overall $1.02 billion in annualized cost savings for fiscal 2015. While gross profit saw a 7% year-over-year growth to $3.02 billion, the company also saw its gross margin expand 110 basis points to 21.3% during the quarter. Best Buy’s operating profit for the fourth quarter stood at $810 million, up 79% from the year-ago period, while the operating margin grew 250 basis points to 5.7%. Including one-time items and discontinued operations such as the sale of its Five Star business in China, Best Buy’s quarterly earnings stood at $1.46 per share.
Segment-wise, Best Buy saw a 3.2% growth in revenues to $12.69 billion from domestic sales, with comparable-online sales growing 9.7% to $1.72 billion on the back of improved traffic and greater average order value. The availability of an improved inventory of online products owing to an expansion in online distribution centres, as well as the company’s ship-from-store option, also contributed to increased online sales. Further, the decline in segments such as services and tablets was more than offset by growth in mobiles, computing and television sales. Consequently, Best Buy’s Domestic segment saw a 9.9% growth to $26.98 billion in adjusted gross profit during the fourth quarter.
However, Best Buy saw a 12.4% slide in revenues from its International segment to $15.12 billion owing to factors such as unfavourable currency headwinds, a 4% decline in comparable-sales mainly in the Canadian market, and the shutting down of big box outlets in Canada. Consequently, gross profit for the International segment fell 12.3% to $328 million for the fourth quarter.
Flat Outlook for Fiscal 2016
Best Buy’s sales in Q4 2015 was mainly driven by consumer excitement surrounding new product launches such as the iPhone 6, making it difficult for the company to sustain the momentum for long. Further, the company, which competes with stores such as HHGregg Inc. (HGG, Financial), Aaron’s Inc. (AAN, Financial) and Conns Inc. (CONN, Financial) in the consumer electronics retail market, is likely to be hit by its enduring incremental investments as well as sector-level challenges. Consequently, Best Buy foresees its growth in comparable-store sales to figure in the flat to negative low-single digits during the first half of fiscal 2016. The company also expects a 30-50 basis points decline in adjusted operating margins during the first two quarters of FY2016.
In 2016, Best Buy will also be carrying forward its cost-savings plan under the Renew Blue Program, aiming to enhance the company’s annualized operating income by around $400 million through the next three years. The company also announced plans to resume share buybacks, with Best Buy expecting to buy back shares worth $1 billion over the next three years under its $5 billion share repurchase program.
Final Thoughts
Best Buy reported upbeat Q4 2015 earnings with strong growth in comparable-online sales. Although the company expects flat sales during the first half of fiscal 2016, Best Buy’s plans to buy back shares during the next three years and the company’s dividend hike announcement will be a welcome sign for investors. With experts project a 15.83% average earnings growth rate for Best Buy over the next five years, and 3.39% earnings growth during fiscal 2016 compared to FY 2015, the Best Buy stock carries ‘buy’ guidance.
