Best Buy, Best Effort? (BBY, CC, GME)

Best Buy’s (BBY-NYSE) Q1 2008 was a bit of a disappointment, although that is somewhat par for the course as the mood was fairly sour going into the report.  The company posted $0.39 EPS on $7.927 Billion in revenues.  First Call estimates were $0.51 EPS and $7.84 Billion.  The company issued FY FEB-2008 EPS guidance $2.85 to $3.15 compared to $3.17 estimates.

The company noted that a significant contributor to the decline was the inclusion of the China business acquired last June, which carried a significantly lower gross profit rate. Domestically, the increase of lower-margin products in the revenue mix in notebook computers and gaming hardware also added to the decline. An increase in the products completing model transitions in the home theater area resulting in markdowns and lower profitability of computer transactions were also factors in the year-over-year decline in the gross profit rate.

Out of the $7.9+ Billion in revenues, the company generated $6.7 Billion in the U.S. alone.  This sets the bar even lower for Circuit City (CC-NYSE) earnings this week.  If the company is saying lower gaming hardware is hurting, it must be losing out to GameStop (GME-NYSE) because those strong gaming numbers in the sector are going somewhere.  Best Buy shares are down close to 4% in pre-market trading to $46.25; its 52-week trading range is $43.51 to $58.49.

Jon C. Ogg
June 19, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.