Best Buy reported a quarterly profit that exceeded expectations despite poor sales reports. Hubert Joly, whose efforts have turned the company around, signalled that his efforts showed progress, as its shares were up by 5 percent. Despite starting the day with a sharp decline in the share value, Thursday seemed to end on a good note for Best Buy.
Posting a higher-than-expected profit Thursday morning, Best Buy sailed smoothly as the first quarter bottom-line was reached despite a sharp decline in the sales recorded. The management at Best Buy expected declines in the consumer electronics industry in spite of these encouraging numbers. Starting the day with a low 3.4 percent, comments about Best Buy in negative territory, were forgotten. The investors focused on cost-savings that helped turn Best Buy into a profitable venture. Reporting a total of $9.03 billion, in the first quarter fiscal 2015 revenue, missing the target $9.23 billion street estimate with a 1.9 percent decline over the revenue reported by Best Buy this time last year. An improvement, however, came in the form of net income earned which stood at $461 million which was reported as $97 million reported last year. Best Buy reported earning 33 cents per share above the others, recording a 19-cent per-share analyst consensus.
CFO Sharon McCollam of Best Buy predicted a decline in the consumer electronics industry but attributed the positive results to achieved market gains in the U.S. The market gain, she said, was fuelled by improving price competition and an enhanced customer experience that focused on advice, service and convenience. McCollam expected that the ongoing decline will continue till eagerly awaited products are released in the market hinting at Apple’s latest release schedule for the iPhone6. She expected comparable sales to be negative in both the second and third quarters. Best Buy was one of the top performing S&P 500 stocks last year, but it is down more than 30% so far in 2014.
Joly, who took the reins of Best Buy in 2012, managed to exceed expectations by reducing the headcount, eliminating hundreds of jobs and closing down unprofitable stores. Joly also simplified management and boosted cash reserves. Many see this as contributing factors to what turned Best Buy’s profits around. Although the sales still fall, the rate of decline has slowed down significantly. David Schick, Stifel analyst noted that the management team was instrumental in simplifying the old methods and finding more profitable paths to customers. Vendors, he noted, seemed to show support for Best Buy’s success.
Rising grocery bills and higher fuel costs in the U.S. dictated consumers’ ability to spend on items such as electronic goods. That did not stop Best Buy from anticipating better sales records when Apple and Amazon release their latest smart phones later this year. Citi analyst Kate McShane on Thursday noted that the gross margin, which came in at 20.2 percent against the 19.5 percent predicted earlier, showed an increase of 7 percent in Best Buy’s pre-market trading. Currently trading in for a 5.6 percent gain, Best Buy exceeded expectations against poor sales records. After all nothing less was expected from one of S&P’s best performers in 2013 posting a 240 percent return.
By Rathan Paul Harshavardan