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Best Buy (BBY)
Best Buy's Profit Misses the Mark by a Penny
With every recession, some companies become victims of tough circumstances and declining profits. Over the last year, consumers have watched some of their favorite stores that have been around for years disappear. The stores left standing are often in a position to really perform well if they can get consumers back through the door. Now that Circuit City is out of the picture, many were expecting Best Buy to experience a surge in sales and profits. Unfortunately, that has not been the case. The electronics chain reported a lower-than-expected quarterly profit as a result of weak sales. How did the results stack up to expectations? What factors contributed to the decline in sales?
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Best Buy didn't perform that bad in comparison to analysts' expectations. In fact, the company just missed expectations by 1 cent. Best Buy's net profit fell to $158 million, or 37 cents a share, in the second quarter that ended on Aug. 29, from $202 million, or 48 cents a share, a year earlier. The company has steadily gained market share after main rival Circuit City closed its doors early this year, but consumers have not been quick to turn to Best Buy as an alternative. The economy may be slowly improving, but consumers are still watching every dime they spend. Now that big discounters such as Wal-Mart (WMT: Charts, News, Offers) are increasing their electronic offerings, consumers are flocking to these stores for bigger and better discounts. Best Buy also took a small hit during the back-to-school shopping season. Demand for notebooks and mobile phones briefly picked up, but definitely did not reach the level that they were use to. The company also pointed out some other areas of concern that led to the decline. Purchases of gaming items, digital cameras, appliances and movies are still being shunned by consumers. This is likely a result of people only purchasing necessary items until the economy and jobs market stabilize.
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Best Buy's Executive Vice President of Finance said in a statement that the company's revenue growth “modestly exceeded” the company's expectations during the first half of this fiscal year. Store traffic also increased slightly during the quarter, but was offset by a slight reduction in the amount of the average receipt. With that said, the company has increased its guidance for the year ending Feb. 27, 2010. Best Buy now expects its full-year forecast to be $3 a share instead of the previously estimated $2.70 a share. Best Buy is also betting a lot on the start of the holiday shopping season. This may be a little premature of them given analysts' predictions that this may be one of the worst holiday shopping seasons in a very long time. This may be a valid point due to the slow recovery in the jobs market and the increasing number of unemployed individuals. It's hard to gauge how retailers will perform in the future especially during these times. Best Buy may be jumping the gun a little by increasing their outlook, but only time will tell if they can deliver concrete results.
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More Stuff Related to Best Buy
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Best Buy Sees Improving Consumer Trends
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