Best Buy (BBY) Shares Selloff Despite Earnings Beat
Shares of Best Buy Co. were trading down -2.93 or -9.35 percent to $28.40 in Thursday’s premarket after the company announced better than expected earnings earlier this morning. The selloff in Best Buy stock this morning is attributed to a lower than expected forecast for the fourth quarter. Best Buy stock closed at $31.33, up +0.62 or +2.02 percent in Wednesday’s regular trading session.
Founded in 1966 as an audio specialty store called Sound of Music in Saint Paul, Richfield, Minnesota based Best Buy Co. renamed in 1983 concentrating more on consumer electronics.
For the company’s fiscal third quarter for 2016 Best Buy reported net income of $125 million or $0.36 per share versus $107 million or $0.30 per share in 2015’s third quarter. Adjusted earnings came to $0.41 per share compared to $0.34 per share in the same period one year ago, an increase of +21 percent. Revenue for the quarter was $8.82 billion versus $9.03 billion last year, a decline of two percent. The analyst consensus was for the company to report earnings of $0.36 on revenue of $8.86 billion.
Total enterprise level comparable store sales increased +0.8% year on year after rising +3.8 percent in the company’s second quarter, analysts expected comparable store sales around +1.5 percent. Domestic comparable store sales increased +0.8 percent in the quarter, while online comparable sales increased +18.3 percent.
International sales declined -29.9 percent to $729 million with the international gross profit rate declining by -10 basis points to 22.5 percent. The decline followed the closure of half of the company’s Canadian Future Shop stores and the laying off of 1,500 workers. Domestic gross profit rate increased +110 basis points to +24.1 percent, in large part due to a higher mix of large screen TVs.
Best Buy’s Chief Executive Officer Hubert Joly noted in the company’s press release that, “We of course recognize that we are up against a strong performance in the fourth quarter of last year and that the NPD industry declines that we saw in the third quarter, both sequentially and year-over-year, may continue throughout this year's fourth quarter. We have also made incremental investments in services pricing and SG&A that are putting pressure on our fourth quarter earnings outlook.”
Mr. Joly concluded saying, “Irrespective, one thing we are certain about is our team's ability to execute exceptionally well throughout the Holiday. We are going into the Holiday clear on our priorities and our plan, and with a better trained, engaged and most importantly, highly determined team. I am grateful for what they have accomplished so far this year and extremely proud of their capabilities and passion to win.”
Best Buy expects domestic revenue growth to be flat for the fourth quarter with a -30 percent decline in international sales. For Best Buy’s full fiscal year, earnings per share were forecast at $2.65 on sales of $39.86 billion. The analyst consensus was for fourth-quarter earnings per share of $1.46 on sales of $13.9 billion. Investors are showing their disappointment in this morning’s premarket, nevertheless Best Buy shares are coming back after being down almost ten percent earlier.
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