Best Buy’s Q3 Profits Up 17%, But Forecasts A Tough Holiday Season - Twice

Best Buy’s Q3 Profits Up 17%, But Forecasts A Tough Holiday Season

Projecting a flat fourth quarter
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Best Buy posted solid earnings on soft sales in its fiscal third quarter, but sounded a cautionary note for industry sell-through in Q4.

Best Buy posted solid earnings on soft sales in its fiscal third quarter, but sounded a cautionary note for industry sell-through in Q4.

Net earnings rose 16.8 percent to $125 million for the three months, ended Oct. 31, as the company continued to chip away at costs, while net sales slipped 2.4 percent, to $8.8 billion, reflecting the consolidation of its Future Shop Canadian business earlier this year. Net sales are now inclusive of the company’s operations in the U.S., Canada and Mexico following its exit from Europe and Asia under chairman/CEO Hubert Joly.

In the U.S., net sales rose 1.2 percent, to $8.1 billion, and comp sales increased 0.8 percent, which included a 0.3 percent benefit from mobile carriers’ new installment-payment plans.

Online comps increased 18.3 percent, to $709 million in revenue, as a new mobile site and the retailer’s enhanced e-commerce capabilities drove increased traffic and higher conversion rates, Joly said. Web sales now represent 8.8 percent of total U.S. sales, up from 7.5 percent last year.

U.S. comp gains came from computing, majaps, health and wearables, and large-screen TVs, and were partially offset by declines in tablets, mobile phones, digital imaging, and extended-warranty repairs. (See tables, below.)

But Joly’s holiday outlook was guarded, based on CE industry sales declines of 4.3 percent last quarter, as tracked by The NPD Group, and Best Buy’s own hard-to-beat 2014 results.

“We of course recognize that we are up against a strong performance in the fourth quarter of last year and that the NPD industry declines that we saw in the third quarter, both sequentially and year over year, may continue throughout this year’s fourth quarter.”

Specifically, the retailer is forecasting flat U.S. revenue for the current quarter, and low single-digit revenue declines companywide, based on a projected 4 percent decline in industry sales and a later start to the Super Bowl sales season.

Commented chief financial officer Sharon McCollam, “The 4.3 percent decline we saw in the NPD-reported categories got progressively worse throughout the quarter, which adds a level of caution to our outlook.”

Nonetheless, Joly said the company is well prepared for the holiday season, ticking off a list of new assets:

* an expansive assortment of alluring and attractively priced technology products, especially in 4K TVs, health and wearables, connected or smart devices, drones and other gift items;

* a range of new digital capabilities, including Blue Assist which provides the ability to call on Blue Shirt advice from the new mobile app;

* an additional 1,100 stores-within-a-store chain-wide, on top of the over 3,700 in place a year ago;

* increasing expertise and proficiency of its sales associates;

* enhanced multichannel delivery capabilities, such as faster shipping through ship-from-store and a better in-store pickup experience;

* a better optimized supply chain that enables earlier store replenishments and higher order fill rates;

* an expanded range of Geek Squad services, including free setup on select purchases and gift tech support; and

* a significantly greater social-media presence, a “high-performing” media campaign, and more refined email personalization capabilities.

Nonetheless, the fourth-quarter warning and lower-than-expected comps rattled investors, who sent Best Buy’s shares down as much as 8 percent in early morning trading.

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