A big basket of internal and macro factors contributed to a stunning 9 percent spike in Best Buy’s same-store sales for the all-important holiday selling period.
But in-house and external forces — including the Trump administration’s new tax cut legislation — also conspired to trim fourth-quarter profits by 40 percent, the retailer reported.
U.S. revenue, which comprised over 90 percent of companywide sales, rose more than 13 percent to nearly $14 billion for the three months ended Feb. 3. Key drivers were an extra week in the fiscal calendar that brought in about $715 million in added sales, and the upside surprise in comps, which partially offset the impact of 18 big-box store closures over the past year.
Online sales totaled $2.8 billion, comprising 20 percent of U.S. revenue, up from 18.6 percent last year. Digital comps increased 17.9 percent due to higher close rates and bigger tickets, but were flat to last year and down from the prior quarter’s 22.3 percent rise.
Chief financial officer Corie Barry attributed the total 9 percent comp-sales increase to:
- better product availability;
- healthy consumer confidence and the strong economy;
- strength in video gaming;
- “strong execution” of the company’s next-phase growth strategy, dubbed Best Buy 2020; and
- fewer and weaker competitors.
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Comps were also bolstered by last year’s soft results, when same-store sales slid nearly 1 percent.
Best Buy Q4 Product Mix And Comps
On the merchandising front, Best Buy enjoyed comp increases across most of its categories, led by the aforementioned gaming plus holiday sales of mobile phones, ostensibly fueled by the new iPhone X. Other strong categories included appliances, up a whopping 21 percent, plus smart home, wearables and home theater, the company said.
In contrast, profits took a hit for the quarter, with net income falling 40 percent, to $364 million. Weighing on the bottom line were higher expenses that outpaced revenue growth; a flat gross profit rate; and a provisional income tax expense of $283 million, related to the new tax reform legislation. Of that, $209 million was related to a one-time mandatory repatriation tax on unremitted earnings of foreign subsidiaries. Best Buy still maintains operations in Canada and Mexico after withdrawing from Europe and China.
Other one-time costs included $75 million in incentive compensation for corporate and store-level employees due to “very strong performance throughout the year,” Barry said, and a $20 million charitable donation to the Best Buy Foundation.
Expenses also included ongoing capital investments, and were partially offset by greater efficiencies and cost savings, Barry said.
The company also repurchased $866 million in Best Buy shares during the quarter.
For the full fiscal year, enterprise-wide revenue rose 7 percent, to $42.2 billion, while net earnings slipped 19 percent, to $1 billion.