Earnings Preview: Best Buy

Best Buy Company Inc. (BBY), the leading specialty retailer of consumer electronic products, is slated to report its fourth-quarter 2011 financial results on March 24, 2011. The current Zacks Consensus Estimate for the quarter is $1.84 a share. For the quarter under review, revenue is $16,347.0 million, according to the Zacks Consensus Estimate.

Third-Quarter 2011, a Synopsis

Best Buy posted lower-than-expected third-quarter 2011 results. The quarterly earnings were 54 cents per share, missing the Zacks Consensus Estimate of 60 cents but rose marginally by 1.9% from 53 cents delivered in the prior-year quarter, due to tight cost control.

Best Buy stated that total revenue tumbled 1.1% to $11,890.0 million from the prior-year quarter, reflecting a 3.3% fall registered in comparable-store sales, offset by the net addition of stores in the last 12 months. Comps in the prior-year quarter rose 1.7%.

The total revenue also fell short of the Zacks Consensus Revenue Estimate of $12,484.0 million.

Management Guided

Management reiterated its fiscal 2011 earnings guidance range of $3.20 to $3.40.

Fourth-Quarter 2011 Zacks Consensus

As per the analysts, Best Buy is expected to post fourth-quarter 2011 earnings of $1.84 a share. The current Zacks Consensus Estimate reflects a growth of 1.7% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between $1.72 and $1.95.

Zacks Agreement & Magnitude

Of the 22 analysts following the stock, two analysts revised the estimate downwards in the last 30 days and only one analyst lowered his estimate in the last 7 days making the Zacks Consensus Estimate slip by a penny.

Mixed 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 28.0% to positive 36.4%. The average remained at negative 0.1%. This signifies that Best Buy has lagged the Zacks Consensus Estimate by an average of 0.1% in the last four quarters.

Best Buy in Neutral Lane

Despite a challenging macro environment, Best Buy took a string of strategic measures to enhance its financial performance across its international and local divisions.

The company intends to increase its investment in sections of business generating profits, and closed down and restructured certain sections that no longer contributed significantly to growth.

The specialty retailer aims to open 150 Best Buy Mobile stand-alone-stores in the U.S.and 40 to 50 Five Star stores in China by the end of fiscal 2012, bringing the total to 325 stores in the U.S.and 210 in China.

Moreover, the company plans to open 6 to 8 large-format stores in the U.S. and a total of 18 stores in the United Kingdom, Mexico and Canada in fiscal 2012. The International market continues to bring noteworthy prospects for the company along with financial growth for the stakeholders.

Best Buy Mobile brought brisk escalation in wireless connection revenues for the company in the U.S. market and the Five Star stores continue to produce noteworthy profits for the company.

However, Best Buy’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively affect their discretionary spending, and in turn, the company’s growth and profitability.

Currently, we maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, Best Buy, which faces stiff competition from Wal-Mart Stores Inc. (WMT) holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

BEST BUY (BBY): Free Stock Analysis Report

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