Operating as the nation’s largest electronics retailer, Best Buy Co. (BBY) made it known before the start of trading on September 15 that the company’s earnings during the 2Q plunged, and missed expectations. Despite the horrendous earnings report, Best Buy raised their earnings and sales guidance for the year.
For the current period, Best Buy reported net earnings of $158M, or $0.37 per share, in sharp contrast to last year’s income of $202M, or $0.48 per share, a decrease in profits of almost 22% year-over-year. Results were affected by an increased strength in the purchasing power of the U.S. Dollar, as well as higher expenses.
Quarterly revenues came in higher than in the previous year, advancing from $9.8B to $11.02B, an increase in sales of more than 12%. Best Buy attributes the higher quarterly sales figure to the addition of 170 stores during the period.
Meanwhile, same store sales declined nearly 4%, due in large part to an unfavorable currency exchange rate. Last year’s 2Q same-store sales advanced 4.2%.
Affecting the company’s bottom-line was an increase in selling, general and administrative expenses, which rocketed to nearly 22% of total revenues, or $2.4B. That compares to last year’s expense ratio of 20.8%, or $2.04B.
Within the industry, analysts were looking for the leading electronics retailer to record quarterly profits of $0.42 per share on overall sales of $10.79B.
Best Buy’s COO, Brian Dunn, commented on the company’s results, “I am pleased, but not surprised, with the market share gains we posted during the quarter. Our ability to capture a significant amount of market share in the period is directly correlated to the dedication and expertise of our employees around the world. We have great prices, great people, and great solutions, a combination that gives us confidence in our ability to deliver a better financial outcome for the year than we originally expected.”
Peering deeper into the company’s report, Best Buy revealed that domestic sales increased from $8.13B to $8.27B, an increase of nearly 2%. Gross profits slipped to 24.3% domestically, while same store sales around the county fell 3.1%.
Internationally, overall revenues surged during the quarter, increasing from $1.67B to $2.75B, a jump in sales of more than 64%. Sales were bolstered by Best Buy’s addition of 66 stores throughout the world. Gross profits advanced from the international markets to 24.5%. Contrary to the success within the international markets, same store sales globally plunge more than 8% during the quarter.
Through the first six months of the year, Best Buy generated net earnings of $311M, or $0.74 per share, in contrast to last year’s half-yearly profits of $381M, or $0.91 per share, a decrease in earnings of more than 18%.
Looking ahead, Best Buy is well aware that throughout the economic downturn, consumers have curtailed their spending habits on big-ticket items. Nevertheless, Best Buy has managed to increase their market share with the dissolving of long-time competitor Circuit City earlier this year.
However, the company is certain that spending will remain under pressure given the expected sentiment within the economy. With that said, Best Buy is looking to post annual earnings for fiscal 2010 between $2.70 and $3.00 per share, up from a previously stated range of $2.50 to $2.90 per share.
Annual revenues are expected to fall between $48B and $49B, also revised higher, from a range of $46.5B to $48.5B. Best Buy remains confident that same store sales for the year will range between flat and a decrease of 2%.
Analysts, on a yearly basis, are looking for the company to post earnings of $2.87 per share on total revenues of $47.8B.
Jim Muehlbauer, Best Buy’s Executive VP of Finance and CFO remarked on the company’s outlook, “Our revenue growth modestly exceeded our expectations for the first half and customer traffic patterns have started to indicate signs of stability. Given these improving trends and our expectations for the remainder of the year, we are both raising the bottom-end of our annual EPS guidance and improving our top-end expectations.”
Although the outlook for the company seems appealing, investors thought differently by the close of the September 15 session. By the sound of the closing bell, shares of BBY were down more than 5%, falling $2.09, to end the day at $38.32 per share.
During the past year, the company’s stock has traded within a wide range, reaching a low of $16.42 per share and highs of $45.00 per share.
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