Best Buy Holiday Sales and Outlook Fail to Impress

Best Buy Co. Inc. (NYSE: BBY) led the markets down early Thursday morning, following the release of its revenue results for the nine-weeks ended on January 2, 2016. However these results were not the only issue. The outlook going forward played a big role as well.

Last year at the same time, Best Buy was a leader in the market with one of the best performances out of the major retail stocks. But it seems the tables have turned this year.

Domestic revenue of $10.1 billion decreased 0.8% from last year. This decrease was primarily driven by a comparable sales decline of 1.4%. Domestic online revenue of $1.7 billion increased 12.6% on a comparable basis, primarily due to a higher conversion rate. As a percentage of total Domestic revenue, online revenue increased 200 basis points to 16.7% from 14.7% last year.

International revenue of $911 million declined 26.1% versus last year. This decline was primarily driven by:

• A negative foreign currency impact of approximately 1,350 basis points.
• The loss of revenue associated with closed stores as part of the Canadian brand consolidation.
• Ongoing softness in the Canadian economy and consumer electronics industry.

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Hubert Joly, chairman and CEO of Best Buy, commented on the holiday sales:

During the holiday period, Domestic revenue declined 0.8% against a backdrop where the NPD-reported categories were down a greater-than-expected 4.8%. The Domestic decline was primarily driven by the mobile phone category, which was softer than both our expectations and the prior year. Excluding mobile phones, Domestic revenue increased year over year due to our strong performance in health & wearables, home theater and appliances. Online revenue increased 12.6% on top of a 13.4% increase last year. In addition, we saw a significant improvement in our Net Promoter Score. From a financial perspective, despite a slightly softer-than-expected topline, we are improving our fourth quarter operating income rate outlook as a result of our continuing conviction to a disciplined promotional strategy and strong expense management.

Sharon McCollam, EVP, CAO and CFO, commented on the outlook going forward:

Based on the above, our Enterprise outlook includes (1) a revenue decline of near 4% versus our previous expectation of a low single-digit decline; and (2) a non-GAAP operating income rate decline of approximately 15 to 30 basis points versus our previous expectation of a rate decline of 25 to 45 basis points. From a tax rate perspective, we now expect the non-GAAP effective income tax rate from continuing operations to be in the range of 34.5% to 35%, versus 34.2% last year, which is expected to result in a negative $0.01 to negative $0.03 year-over-year non-GAAP diluted EPS impact in the fourth quarter of fiscal 2016.

Shares of Best Buy closed Wednesday down 2.9% at $29.26, with a consensus analyst price target of $38.28 and a 52-week trading range of $28.32 to $42.00. In early trading indications Thursday, the stock was down an additional 7.7% at $27.00.