Earnings Scorecard: Best Buy

Zacks

Best Buy Company, Inc. (BBY), the leading specialty retailer of consumer electronic products, recently posted weaker-than-expected third-quarter 2012 results, as the global economic unrest and cautious consumer behavior weigh on it.

Street analysts had enough time to ponder on the company’s scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

A Synopsis of Last Reported Quarter

Richfield, Minnesota-based Best Buy unveiled its third quarter financial results on December 13. The quarterly earnings of 47 cents a share missed the Zacks Consensus Estimate of 51 cents and declined 13% from 54 cents earned in the prior-year quarter.

Management reiterated its fiscal 2012 adjusted earnings guidance range to $3.35 to $3.65 per share.

Total revenue increased 1.7% year over year to $12,099 million. Best Buy marked a trend reversal and registered a 0.3% growth in comparable-store sales versus a decrease of 3.3% witnessed in the year-ago quarter. In the previous quarter the company had witnessed a fall of 2.8% in comparable-store sales.

However, total revenue also came below the Zacks Consensus Estimate of $12,127 million.

Best Buy stood by its earlier projection for fiscal 2012 and expects revenue between $51 billion to $52.5 billion, while comparable store sales are expected to remain flat or decline by 3%. 

(Read our full coverage on this earnings report: Best Buy Disappoints Again)

What Drives Estimate Revision

Best Buy’s third-quarter 2012 results failed to impress the analysts following the stock with earnings missing the estimates and falling from the prior-year quarter. Total revenue also fell short of the Zacks Consensus Estimate. Consequently, majority of the analysts tweaked their estimates downward.

Despite lower-than-expected results, the company reiterated its fiscal 2011 guidance. But this was not enough to alleviate the negative sentiment evident among the analysts, as the guidance was mere reflection of the share repurchase activity providing cushion to the bottom-line. Excluding the favorable impact of share repurchase, the updated earnings guidance range would have been $3.15 to $3.40.

However, inspiring confidence in the stock is the company’s unique multi-channel approach, scale optimization, expansion of online assortments, competitive pricing and financial strength that help drive traffic counts and comparable-store sales and in turn the top-line.

Best Buy witnessed a marginal increase of 0.3% in the third quarter, reflecting a sharp improvement from a decline of 2.8% experienced in the second quarter. The Domestic online revenue jumped 20%. Management expects to increase its online business twofold in the next 3 to 5 years.

In the last 7 days, 7 out of 22 analysts covering the stock lowered their estimates, whereas 3 analysts raised theirs for the fourth quarter of fiscal 2012. For the first quarter of fiscal 2013, 9 analysts revised their estimates downward and only 1 analyst raised the same.

For fiscal 2012, 17 analysts moved their estimates downward, whereas 2 analysts moved their estimates upward. For fiscal 2013, 15 analysts trimmed their estimates and 1 analyst raised the same in the last 7 days.

Magnitude of Estimate Revisions

For the fourth quarter of 2012, the Zacks Consensus Estimate increased by a penny to $2.18, whereas for the first quarter of 2013, the Zacks Consensus Estimate dropped by 5 cents to 45 cents in the last 7 days.

For fiscal 2012, the Zacks Consensus Estimate fell by 5 cents to $3.40, and for fiscal 2013, the Zacks Consensus Estimate slipped by 12 cents to $3.77 in the last 7 days.

Best Buy is Neutral

Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), intends to focus more on profitable sections, such as mobile computing, eReaders and appliances. The company’s International business also provides opportunities for growth.

It expects to strengthen the functions of the Best Buy brand in China with the Five Star division, and is concentrating on its European operations. However, we still remain concerned about falling comps in televisions, entertainment hardware and software categories, cautious consumerbehavior, and a sluggish economic recovery.

Currently, we maintain our Neutral rating on the stock. Moreover, Best Buy holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating and correlates with our long-term view.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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