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Mayank Marwah
Mayank Marwah
Articles (582) 

Best Buy 4th-Quarter Earnings Top Expectations, Plans Store Closures

Favorable competitive environment helps company gain market share

March 05, 2018 | About:

Best Buy (NYSE:BBY) reported better than expected results in the recently released fourth quarter results with revenue and earnings topping Wall Street expectations. The company also gave a guidance for 2019 while expressing its plans for closing its mobile stores business. The company experienced solid sales in the gaming category.

Best Buy has benefited from a more “favorable competitive environment” during the holiday season. The company is enjoying a greater market share, thanks to the exit of some of its peers including Circuit City and RadioShack. which filed for bankruptcy. Simultaneously, Best Buy has been pouring in millions to improve its customer service, provide competitive prices and move toward a leaner real estate portfolio. Let’s dig a little into the quarterly figures and look at the electronic retailer’s plan.

The key numbers

Revenue came in at $15.36 billion, well above Thomson Reuters analyst survey of $14.51 billion.

The retailer’s earnings, adjusted for non-recurring items, stood at $2.42 per share, blowing past analyst expectation of $2.05. Net income of the Richfield, Minnesota company came in at $364 million for the quarter, which translates to $1.23 per share. That compares with an earnings of $607 million, or $1.91 per share, in the same period last year. The company cited new tax legislation as the primary reason behind the drop in the bottom line. Best Buy would have otherwise reported $1.17 more in earnings per share.

Same store sales of the company saw considerable improvement compared with last year. The metric jumped 9% relative to last year’s 0.9% dip. Analysts had expected same store sales to rise 2.9%.

Company CFO Corie Barry referred to certain critical factors that aided the consumer electronic giant during the period. According to Barry, the withdrawal of its competitors made a major difference to the results.

Plan going forward

Best Buy announced its plan of closing nearly 250 mobile stores in the US just a day ahead of releasing its earnings. The company had started the phone and accessories store over a decade back, even before Apple (NASDAQ:AAPL) had launched its flagship offering, the iPhone. Best Buy’s mobile business was flourishing and growing quickly with attractive profit margins.

However, now the business seems to have matured with operating cost higher than the other stores run by the company. The margins have also decreased over time. In addition, Best Buy’s mobile business accounts for a meagre 1% of the company’s total revenue. Considering such factors, the company has opted to exit this business and instead concentrate on offering these devises in its existing “larger-format stores”.

Looking ahead

Best Buy expects the mobile business closure cost to come in around $65 million in pretax charges. This would lower its earnings per share by $0.14 to $0.17 in the first quarter of 2019.

As far as the full year is concerned, Best Buy forecasts same-store sales to rise around 2%. Revenues should come in the range of $41 billion to $42 billion, and earnings per share to come in between $4.80 and $5.

Best Buy said that its board has approved a 32% rise in the quarterly dividend. The retailer will pay $0.45 in dividend to its shareholders. Additionally, the company plans to buy back up to $1.5 billion in stock during the year.

Disclosure: I do not hold any position in the stocks mentioned in this article.

About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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