Friday, March 11, 2011

Best Buy Co. Inc. (NYSE: BBY): Q4 Earnings Preview 2011

Best Buy Co. Inc. (NYSE: BBY), the largest U.S. electronics retailer, is scheduled to release fourth quarter earnings before the opening bell on Thursday, March 24, 2011. Analysts, on average, expect the company to report earnings of $1.85 per share on revenue of $16.27 billion. In the year ago quarter, the company reported earnings of $1.82 per share on revenue of $16.55 billion.

Best Buy Co., Inc. operates as a retailer of consumer electronics, home office products, entertainment software, appliances, and related services. It operates in two segments: Domestic and International. 

In the preceding third quarter, the Richfield, Minnesota-based cmpany's net income was $217 million or $0.54 per share, compared with a profit of $227 million or $0.53 per share in the prior-year quarter. Revenue declined 1% to $11.89 billion from $12.02 billion in the same quarter last year. Analysts, on average, expect the company to report earnings of $0.61 per share on revenue of $12.47 billion.

Last month, the company said that it continues to expect adjusted earnings for full-year 2011 in a range of $3.20 to $3.40 per share. 

The company recently announced that its plans to take a series of actions to improve financial performance of its International segment and to boost growth in key strategic businesses. Best Buy said that the restructuring actions will see it closing branded stores in China and Turkey as part of its plan to generate savings of up to $70 million by fiscal 2013. It currently plans to close nine branded stores in China, but intends to reopen two of them at a later date. Meanwhile, the company announced plans to exit the Turkey test market by closing all current operations in the country, including the company's two Best Buy large-format stores. Further, the growth plans will see the company making new store investments focused on the profitable growth platforms of the mobile business in the U.S. and its Five Star business in China. The company also announced plans to improve efficiencies in certain U.S. end-to-end supply chain operations in order to enhance customer service and reduce costs.  As part of its growth plan, the company plans to open about 150 Best Buy Mobile stand-alone-stores in the U.S. as well as 40 to 50 Five Star stores in growing markets in fiscal 2012 in China.The company also plans to open 6 to 8 large-format stores in the U.S., and about 18 Best Buy-branded large-format stores in Canada, United Kingdom and Mexico during fiscal 2012.These restructuring actions are projected to result in charges of $225 million to $245 million during fiscal 2011 and 2012. Majority of these charges, expected to be $210 million to $230 million with an expected impact to earnings of $0.33 to $0.36 per share, are expected to be incurred in the fourth quarter of fiscal 2011. It will also result in annual pre-tax net savings of up to $70 million by fiscal 2013, with about $40 million in savings amount to be realized in fiscal year 2012.

Best Buy has struggled in recent months, losing market share to online retailers such as Inc. (NASDAQ: AMZN) and big-box and discounters such as Wal-Mart Stores Inc. (NYSE: WMT) and Costco Wholesale Corp. (NASDAQ: COST).

Shares of the company have dropped nearly 20% over the past year amid concerns about the company's shrinking market share, falling comps in televisions, entertainment hardware and software categories, as well as a cautious consumer behavior. Softness in its sales of televisions and entertainment software continued through the heart of the important holiday selling season. The company's revenue for the fiscal month ended on January 1, 2011, dropped 1.6% to $8.4 billion from $8.5 billion in the five-week period ended on January 2, 2010. Best Buy attributed the decline in total revenue to a comparable store sales decrease of 4%. In the year-ago December, total comparable store sales were up 8.2%. The company started promotions earlier, hired more telephone agents and kept stores open for longer hours than usual for this past holiday season. It held special promotional events on smartphones and hosted private shopping sessions and movie screenings for loyalty club members.

Best Buy faces a significant uphill battle to regain market share. Television sales have been weak across the board, with entry-level price points declining steadily as more sellers enter the market and consumers slow to adopt new 3-D technology. After a decision to focus on promoting pricier 3D TVs backfired, Best Buy acknowledged its misstep by advertising cheaper sets later in the holiday season.

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