Investors cheer Best Buy’s pre-holiday earnings

Best Buy’s shares have yet to recover from a year-ago sell-off.

By Nick Kariuki

Best Buy Co. shares rose sharply Thursday after the consumer electronics retailer announced better-than-expected third-quarter earnings, ahead of the highly competitive holiday shopping season.

For the quarter ended Nov. 1, Best Buy’s net income rose to $107 million, or 30 cents per diluted share, from last years net of $54 million, or 16 cents a share.

On an adjusted basis, excluding one-time and exceptional items, the company’s per share earnings were 32 cents, up from 18 cents a year ago.

The stronger earnings performance came on revenues that rose less than one percent to $9.38 billion from $9.32 billion the year before.

The earnings trounced analyst expectations that Best Buy’s earnings per share would be 25 cents.

Comparable sales, a key measure for retailers, rose to 3.2 percent, well above the 1.8 percent of the year-ago quarter.

Best Buy, a “big-box” retailer that once enjoyed a powerful market position, has like other “brick-and-mortar” chains come under heavy pressure from online competition.  That pressure came into painful focus a year ago, when weak holiday sales in 2013 led to a single-day drop of 29 percent in the company’s stock price on Jan. 14.

Company officials have pressed forward with what they call it’s the “Renew Blue” turnaround plan, which looks to accelerate online sales growth, make better use of store space, and reducing supply chain inefficiencies and SG&A costs.

“Best Buy’s third-quarter update flipped the narrative,” Morningstar analyst RJ Hottovy said in an online note, referring to the strengthening comparable store sales. But he cautioned investors “not to extrapolate the third quarter results as sustainable longer term trends.”

“At this point in our transformation, we have eliminated close to $1 billion in costs, reduced our domestic SG&A rate by approximately 170 basis points compared to two years ago and made progress towards stabilizing our domestic comparable sales,” Hubert Joly, Best Buy’s president and CEO, said the earnings conference call.

In New York Stock Exchange trading, shares of the Richfield, Minnesota-based company closed up $2.48, or 7 percent, at $38.02.

Best Buy’s stock-market surge suggests that investors are optimistic that the company is more prepared going into the the holidays than it was last year.

Despite Thursday’s positive news, Best Buy offered a guarded forecast. Sharon McCollan, Best Buy’s chief financial officer, told analysts that the company expects “near flat year-over-year revenue and comparable sales growth.”

“Now like every holiday, we believe the outcome of these initiatives is and will continue to be tempered by external and internal factors, including the investments that are required to drive them,” Joly said.