Best Buy Company, Inc. (BBY), the leading specialty retailer of consumer electronic products, recently posted weaker-than-expected second-quarter fiscal 2012 results, as global economic unrest and cautious consumer behavior weighs on it.
Street analysts had over a week to ponder on the company’s scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
The quarterly earnings of 47 cents a share missed the Zacks Consensus Estimate of 53 cents and plunged 21.7% from 60 cents earned in the prior-year quarter.
Management now expects fiscal 2012 adjusted earnings between $3.35 and $3.65 (including a positive impact of 20–25 cents a share from share repurchases).
Richfield, Minnesota-based Best Buy said that total revenue remained almost flat year over year at $11,347 million, but fell short of the Zacks Consensus Estimate of $11,442 million. For fiscal 2012, Best Buy stood by its earlier projection of $51 billion to $52.5 billion in revenues.
(Read our full coverage on this earnings report: Best Buy Misses Estimate)
What Drives Estimate Revision
Best Buy’s second-quarter 2012 results failed to impress the analysts following the stock, and majority of them tweaked their estimates. Despite an updated earnings guidance provided by the company, a negative sentiment was palpable among the analysts as the upside was a mere reflection of the share repurchase activity that is providing a cushion to the bottom line. Excluding the favorable impact of share repurchase the updated earnings guidance, the range would have been $3.15 to $3.40, lower than $3.30 to $3.55 per share guided previously.
Best Buy witnessed a fall in comparable store sales of mobile phones, highlighting the softness in the industry due to no significant launch of new phones compared with the prior-year quarter. Gross margin during the quarter also contracted 40 basis points to 25.3%. But management hinted of an improvement in the gross profit margin in the second half, reflecting an anticipated sales increase in mobile phones.
In the last 7 days, 10 out of 21 analysts covering the stock lowered their estimates, whereas 4 analysts raised theirs for third-quarter 2012. For the fourth quarter, 12 analysts raised their estimates and 4 cut theirs.
For fiscal 2012, 14 analysts moved their estimates downward, whereas 2 analysts moved theirs upward. For fiscal 2013, 10 analysts chopped their estimates and 1 raised the same in the last 7 days.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate dropped by 2 cents to 50 cents for the third quarter but rose by 4 cents to $2.14 for the fourth, in the last 7 days.
For fiscal 2012, the Zacks Consensus Estimate fell by 6 cents to $3.40, and for fiscal 2013, it slipped by 5 cents to $3.58 in the last 7 days.
Best Buy is Neutral
Best Buy intends to focus more on its profitable sections, such as mobile computing, eReaders and appliances. The company’s International business also provides opportunities for growth. It expects to strengthen the functions of the Best Buy brand in China with the Five Star division, and expand in the new markets of Mexico and the United Kingdom. However, we still remain concerned about falling comps in televisions, entertainment hardware and software categories, as well as a cautious consumer behavior.
Currently, we maintain our “Neutral” rating on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating and correlates with our long-term view.