Best Buy shares drop on revenue decline

By Beixi(Bessie) Xu

Shares of Best Buy Co., Inc. slumped 4.5 percent Wednesday after the company reported a big jump in fourth quarter earnings but a decline in revenue.​

“Their sales were negative last quarter, and I think people got nervous that in a long run their sales are still going to go away to other competitors,” said Brandon Fletcher, senior analyst at AllianceBernstein, in a phone interview. “The numbers of assets they have are not useful to those sales, and will inevitably cause the stock to continually go down.”

Best Buy’s net income in the fourth quarter ended Jan. 28 jumped 37 percent to $607 million, or $1.91 per diluted share, from $479 million, or $1.40 per diluted share, in the year-earlier quarter. The consensus estimate was $1.66, according to Zacks Investment Research.

Best Buy’s 2015 and 2016 revenue

Revenue decreased $141 million to $13.48 billion from $13.62 billion, reflecting a 0.9 percent decline in domestic same-store sales. Executives said in the conference call that the softness in domestic sales was due to Samsung Galaxy Note 7 smart phone recalls and the delay of those sales during the quarter.

Best Buy’s “domestic online revenue of $2.3 billion increased 17.5 percent on a comparable basis primarily due to increased traffic and higher conversion rates,” the company’s press release stated. Online revenue increased 300 basis points to 18.6 percent of total revenue versus 15.6 percent last year.

“Our strong bottom-line performance in the fourth quarter was driven by a disciplined promotional strategy, continued optimization of merchandise margins and strong expense management,” said Hubert Joly, chairman and CEO of Best Buy, in the conference call.

In New York Stock Exchange trading, Best Buy’s shares closed at $42.14 Wednesday, down $1.99.

The company announced the start of a “Building the New Blue” program that will last until 2020. It calls for growth in both online and in-store sales, particularly in Mexico and Canada, emphasizes provision of services and solutions that “solve real customer needs,” and will “continue to reduce cost and drive efficiencies throughout the business.”

“Any time they announce a program, everybody has to work on it to see whether the program is good or not,” said Fletcher, of AllianceBernstein. “We like this idea of taking service as what Best Buy is going to be good for, and it is true. However, it will take time to see whether these things actually work or not. By the way, their stores don’t really support their sales any more and there are lots of old assets that are not very well utilized.”

Best Buy reported full year earnings increased 36.9 percent to $1.23 billion or $3.81 per diluted share from $897 million, or $2.56 per diluted share a year earlier. Annual sales decreased 0.3 percent to $39.4 billion.

For the current fiscal year, Best Buy expects to report earnings per share of 35 cents to 40 cents in the first quarter and revenue growth of approximately 1.5 percent on a 53-week basis, said Corie Barry, Best Buy CFO.

“The guidance for their first quarter and the full-year 2017 earnings growth rate were light,” wrote David Magee, analyst at SunTrust Robinson Humphrey Inc., in a note. “The EPS estimates for the 2017 full year may rise because the company announced an accelerated share repurchase program that would result in 20 to 25 percent of the shares outstanding being purchased over the next two years.”

​Photo at top:Best Buy on Michigan Ave.(Beixi Xu/MEDILL)​