Best Buy (BBY, Financial) released its first quarter 2017 earnings last week and disappointed investors who were expecting the electronic retailer to see better comparable store sales.
The company’s shares trended lower by as much as 7% following the earnings result. Poor sales of mobile handsets, tablets and computers more than compensated for the positive effect of strong sales of wearable devices, appliances and home theaters. This dented the company’s revenue. Besides, the company gave weak second quarter guidance that further dampened investor sentiment. Here’s a brief look at the quarter and the retailer’s outlook.
Quarter overview
Best Buy’s reported first quarter revenue of $8.44 billion was down 1.3% from last year in the same period when the company recorded revenue of $8.56 billion. Standard & Poor's Global Market Intelligence had predicted the revenue for the quarter to come in around $8.3 billion. The company experienced a 1% decline in domestic revenue to $7.89 billion. The top line was impacted by soft sales of handsets, tablets and computers, which was also evident in the company’s comparable store sales for the quarter. The ongoing weakness in the retail sector combined with sluggish consumer spending resulted in the revenue decline.
Best Buy’s revenue from its international business dropped 8.1% to $614 million. This is partly because of the negative impact of the foreign currency translation and the loss of revenue from stores that were closed in Canada. Best Buy shut down 66 large format stores in Canada last year.
However, the company’s net income attributable to shareholders jumped to $229 million, translating to 70 cents per share. Last year in the comparable period Best Buy generated net income of $129 million, which translates to 36 cents per share.
The company’s comparable store sales were down 0.1% compared with last year's same-store sales growth of 0.6%. What’s adding to investors' concern is the continuing weakness in the electronic retail segment.
Online sales remain a bright spot
Though online retail sales added pressure owing to competitively priced commodities with tough competition among ecommerce retailers, Best Buy managed to attract customers by keeping prices low.
This was reflected in the company's online business, which saw 24% growth in sales. This was largely driven by higher digital traffic and improved dot-com competencies, which includes faster shipping of goods. Though appliance sales were strong, it wasn’t enough to compensate for the lower sales of mobile handsets and tablets.
What to expect?
Best Buy has given a revenue guidance of $8.35 billion to $8.45 billion for the second quarter of fiscal 2017. The company expects Enterprise and Domestic comparable sales to remain unchanged for the period. The retailer forecasts its earnings per share to come in around 38 cents to 42 cents, which is lower than the consensus estimate of 50 cents per share. In addition, Best Buy estimates its second quarter international revenue will go down 5% to 10%. The company will continue to stay focused on its Canadian operations.
The retailer is also working to improve efficiency and lower operational costs across its business verticals. This would be instrumental for the company to be able to save funds for strategic investments that will help in expanding its profitability. One of the ways to attain this is to streamline processes across all verticals together with increasing focus on enhancing customer experience.
Best Buy is preparing to get a stronger industry positioning to drive future growth. The company is undertaking various initiatives in marketing, ecommerce platform, entire supply chain, customer care and services to strengthen its multichannel capabilities. This should mean results for the company in the long run.
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