Updated! Minneapolis — Higher sales, lower costs, greater supply-chain efficiencies and more measured promotions all contributed to a 77 percent increase in Best Buy’s fiscal fourth-quarter profits.
Net earnings hit $519 million for the three months, ended Jan. 31, as president/CEO Hubert Joly’s sweeping “Renew Blue” turnaround plan gained traction and reversed declining comp-sales trend.
Indeed, total company comps increased 2 percent for the quarter, and total revenue rose 1.3 percent to $14.2 billion.
In the U.S., revenue edged up 3.2 percent to $12.7 billion, and comps increased 2.8 percent in stores and 9.7 percent online.
Joly attributed the sales gains to “strong multichannel execution” and the company’s ability to capitalize on industry growth trends in large-screen TVs and mobile phones, which helped offset weakness in tablets. Growth in phones reflected higher average selling prices (ASPs) the company said, and the computing category also turned in a strong quarter.
Broken out by product category, CE comps rose 10.7 percent for the quarter, raising the category to 33 percent of the U.S. sales mix.
Appliance comps rose 7 percent, increasing the category’s sales mix to 7 percent from 5 percent.
Comps for computing and mobile phones were flat, reflecting weakness in tablets and lowering the category to 45 percent of the mix from 46 percent last year.
Comps for entertainment, which includes movie and music sales, slipped 1.8 percent, leaving the category at 11 percent of the mix.
Comps for services, which include service contracts, extended warranties, product repair and delivery and installation, declined 11.4 percent, lowering its share of the mix from 5 percent to 4 percent. Persistent comp declines for the category have prompted a change in leadership for the business unit.
Driving the online gains was a substantial increase in inventory available for shipping from stores, and increased traffic and higher conversion rates due to greater online marketing. But the channel was hamstrung by softness in tablets – a category with high online penetration – and its inability, at least for the time being, to activate the mobile carriers’ new installment billing plans online, chief financial officer Sharon McCollam explained on an earnings call.
Also goosing the quarterly results was an 80-basis point gain from in-store activations of the installment billing plans; a $68 million windfall from its new private-label credit card agreement, vs. costs of $65 million last year; changes in its mobile warranty plans that yielded fewer claims and lower costs; and higher margin recovery on returned, replaced and damaged products, as returned and refurbished items are more readily sold online and in stores.
Aiding earnings was an additional $55 million in annualized cost reductions — primarily from new supply chain efficiencies and the lower costs of returned, replaced and damaged goods — bringing the running total to $1 billion in ongoing savings.
The company also announced that it completed the sale of its money-losing Five Star retail business in China last month, less than two years after offloading its European operations, leaving only its North American businesses in the U.S., Canada and Mexico.