Story from Bloomberg
Best Buy (BBY) came up short of Wall Street's second-quarter profit forecast Tuesday.But the nation's top consumer electronics retailer raised its full-year guidance, citing improved sales in August.
For the quarter that ended Aug. 29, Best Buy earned 40 cents a share excluding a one-time tax impact, a penny shy of the average forecast of analysts polled by Thomson Reuters.
That's 17% below the year-ago figure, marking the fifth straight quarter of year-over-year declines. Including the tax impact,
Best Buy earned 37 cents per share, down 23%.
Sales rose 12% to $11.02 billion, edging past analysts' estimates, thanks to new store openings. The firm has opened 170 net new stores in the past 12 months. But sales at established stores dipped 3.9%.
Best Buy increased its earnings-per-share outlook for the full year to a range of $2.70 to $3. That's up from its June guidance of $2.50 to $2.90 EPS for the year ending Feb. 27, 2010.
Best Buy expects annual revenue of $48 billion to $49 billion, an average increase of 8%.
It sees comparable store sales down 2% to flat for the year.
"Our revenue growth modestly exceeded our expectations for the first half, and customer traffic patterns have started to indicate signs of stability," Jim Muehlbauer, Best Buy's chief financial officer, said in a conference call. "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."
Investors weren't buying the optimism and sold off shares. Shares fell 5.2% Tuesday to finish at 38.32.
Because Best Buy doesn't give quarterly guidance, there was a disconnect between what management was expecting and what the Street was expecting, says Anthony Chukumba, an analyst with FTN Equity Capital Markets.
What's important for Best Buy are the company's market share gains and the fact it sees improved consumer spending, Chukumba says.
"They're feeling more confident on the rest of the year," he said. "Customer traffic is up, and that's huge."
Best Buy Chief Executive Brian Dunn says the store chain gained 2.7 percentage points of market share in the quarter.
That's on top of a 2 percentage point gain in the first quarter, related to rival Circuit City's liquidation.
"These gains are an important part of our story," Dunn said on the conference call. "Market share gains are nothing new to Best Buy. ... This marks the 15th consecutive quarter of share gains for us. We have a track record for acquiring and retaining market share."
Customers are looking for a retailer who can help them with fast-changing, often-confusing technology products, he says.
The holiday sales quarter will offer many enticing products, Dunn says. They include PCs running Microsoft's (MSFT) new Windows 7 operating system, ultrathin Internet-enabled flat panel TVs and the latest smart phones.
Best Buy saw comparable store sales gains in notebook computers, mobile phones and flat-panel TVs and declines in video games, digital cameras, music and movies.
Domestic comparable store sales in flat-panel TVs increased by the mid-single digits as unit increases more than offset declines in average-selling prices.
Best Buy got more aggressive in pricing and promotions last quarter in the U.S. as a way to gain market share, Chukumba says.
As a result, its domestic gross profit margin declined by 0.6 percentage points to 24.3% from a year ago.
