Earnings Preview: Best Buy

Best Buy Company Inc. (BBY), one of the leading specialty retailers of consumer electronic products, is scheduled to report its second-quarter 2011 financial results before the bell on Tuesday, September 14, 2010. The current Zacks Consensus Estimate for the quarter is 44 cents a share.

First-Quarter 2011, a Synopsis

Best Buy reported first-quarter 2011 on June 15, 2010. Despite a sustained growth in the top-line, the quarterly earnings of 36 cents a share fell short of the Zacks Consensus Estimate of 50 cents, and also dropped 14.3% from 42 cents delivered in the prior-year quarter.

Richfield, Minnesota based company, Best Buy, said that total revenue climbed to $10,787 million, up 6.9% from the prior-year quarter, reflecting the net addition of stores in the last 12 months, a 2.8% increase in comparable-store sales, and favorable impact of foreign currency translation.

Guidance

Despite lower-than-expected results, management remains optimistic about fiscal 2011 due to the increase in market share and growth in revenue.

The nation’s largest electronics retailer, Best Buy at its last earnings call reaffirmed its earnings guidance of $3.45 to $3.60 per share for fiscal year 2011, reflecting an increase of 10% to 14% year-over-year. Revenue in fiscal 2011 is expected between $52 billion and $53 billion, an increase of 5% to 7%. Comparable-store sales are expected to rise in the range of 1% to 3%.

Second-Quarter 2010 Consensus

Analysts surveyed by Zacks, expect Best Buy to post second-quarter 2011 earnings of 44 cents a share. The current Zacks Consensus Estimate represents a year-over-year growth of 18.9%. The current Zacks Consensus Estimates for the quarter range from a low of 35 cents to a high of 55 cents.

The current Zacks Consensus Estimate has remained stagnant over the last 30 days; despite 8 out of 26 analysts covering the stock revising their estimates downward. In the last 7 days too, 7 analysts have lowered their forecast, which resulted in the fall in consensus estimate to 44 cents from 46 cents.

The downward revisions in the estimates indicate a negative sentiment palpable among analysts who are seeing sales trend slowing in consumer electronics (TV and computers) and remain concerned about the uncertainty still prevailing in the economy. Costco Wholesale Corporation (COST) and Target Corporation (TGT) also reported sluggish sales in consumer electronics for August 2010. Analysts also believe that Best Buy may revisit its outlook and would forecast moderate growth.

Earnings Surprise History

With respect to earnings surprises, Best Buy has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 28% to positive 23.3%. The average remained at negative 3.9%. This suggests that Best Buy has underperformed the Zacks Consensus Estimate by an average of 3.9% in the last four quarters.

Best Buy in Neutral Lane

The dominant position in the consumer electronic business enables Best Buy to sustain growth in the top-line, expand its store base, and boost its market share through acquisitions. The stores tailor their store merchandising, staffing, marketing and presentation to meet the distinct needs of targeted customers.

Best Buy has been also actively managing its cash flows and making prudent capital expenditures. The company sells products that are more discretionary in nature rather than necessities and runs the risk of sluggish consumer demand for big ticket discretionary products and price deflation.

Currently, Best Buy maintains a Zacks #4 Rank (‘Sell’). Our long-term recommendation on the stock is Neutral.

BEST BUY (BBY): Free Stock Analysis Report

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