Best Buy Getting Clobbered After Earnings Miss

Best Buy Co. Inc. (NYSE: BBY) reported adjusted 2013 second fiscal quarter EPS of $0.20 and $10.55 billion in sales before markets opened this morning. In the same period a year ago, the consumer electronics retailer reported adjusted EPS of $0.47 on revenue of $10.86 billion. First-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.31 and $10.63 billion in revenue.

The earnings press release did not include comments from any company executive. Probably wise, considering the company yesterday announced the appointment of Hubert Joly, a turnaround specialist, as the new CEO. He’s certainly got his work cut out for him.

Same-store sales dropped 1.6% in the U.S. and 8.2% internationally. According to the company:

[The domestic drop was due to] declines in gaming within the Entertainment revenue category, digital imaging and televisions within the Consumer Electronics revenue category and notebooks within the Computing and Mobile Phones revenue category. … [The international decline was due to] lower growth in consumer spending in China.

Domestically, online sales grew 14% year-over-year, but that is no help for the 41 million square feet of retail space the company has to deal with. That square footage only fell by 1.6 million square feet in the past 12 months. Either Best Buy thinks that big-box retail sales will stage a dramatic comeback or the company cannot sell the real estate. This could turn out to be the new CEO’s biggest headache.

Mobile phone sales rose 35% on a same-store basis, but gross profits were down 6% domestically and 9% internationally. International softness was driven by poor performance in Europe, where price-cutting on mobile phones hammered margins.

Best Buy also declined to say any more about guidance:

Due to lowered expectations for industry wide sales and the uncertainty associated with several key product launches expected in the second half of fiscal 2013, the company has reduced its annual earnings expectations. In addition, the company has just announced a new CEO who will start in early September. Given these factors, the company does not intend to further provide or update earnings guidance for fiscal 2013.

The company did say that it expects to generate free cash flow of $1.25 to $1.5 billion for the fiscal year. That should not be too hard if Best Buy does not build any new stores.

Shareholders are unlikely to be patient, especially given the inability of the company to reach an agreement on a deal with founder and largest shareholder Richard Schulze. His offer of $24 to $26 per share probably looks pretty good to a lot of shareholders this morning.

Best Buy’s shares are getting slammed, down more than 9% in premarket trading at $16.44. The current 52-week range is $16.97 to $28.52, so shares will set a new low if that price holds. Thomson Reuters had a consensus analyst price target of $21.83 before today’s results were announced.

Paul Ausick