Best Buy Rallies After Shoppers Snap Up Phones and Home-Theater Gearby
Third-quarter sales overcome Samsung recall, shipping delays
Performance gives investors confidence in Joly turnaround plan
Best Buy Co. rose after third-quarter earnings topped projections, with strong demand for mobile phones and home-theater equipment helping it overcome recalls of Samsung products and delayed shipments of appliances.
Profit was 62 cents a share, excluding some items, the company said Thursday in a statement. Analysts projected 47 cents, on average.
The results reinforce that the largest U.S. electronics retailer is continuing its comeback under Chief Executive Officer Hubert Joly, who joined the company in 2012 after a career in the hotel industry. Domestic sales were driven by mobile phones, home theater and wearable technology. Best Buy also was helped by surging growth in U.S. e-commerce revenue, which rose 24 percent to $881 million.
“We have a wealth of growth opportunities across several product categories,” Joly said on a call with reporters. That includes traditional categories such as appliances and phones, as well as emerging technologies like drones and virtual reality, he said.
The stock advanced as much as 7.8 percent to $43.59 in New York. That’s the biggest advance since Aug. 23, when the retailer reported an unexpected gain in same-store sales. Shares of Richfield, Minnesota-based Best Buy had gained 33 percent this year through Wednesday.
Revenue rose to $8.95 billion last quarter, surpassing projections of $8.85 billion. Comparable sales climbed 1.8 percent, topping the 1 percent gain that analysts projected, according to Consensus Metrix. That marks the seventh increase in the past nine quarters.
Best Buy outperformed despite Samsung recalling and then ending production of its newest mobile phone, the Galaxy Note 7. That hurt sales by about $60 million last quarter. Hanjin Shipping Co. also filed for bankruptcy, disrupting global supply chains. The company’s collapse slowed sales of appliances, which has been one of Best Buy’s strongest product categories thanks to the rebounding U.S. housing market. Sales from that division rose 3 percent, compared to a gain of 16 percent a year ago.
The company made up for those disruptions with its online business. Revenue from the web rose by $171 million, representing all of Best Buy’s sales growth last quarter and making up for a decline at its stores. Joly has long sought to combat decreasing traffic at stores with robust e-commerce gains and by enticing shoppers to spend more when they do visit physical locations. The company said the average purchase in stores rose last quarter.
The growth streak signals that Best Buy is successfully moving past the first phase of Joly’s turnaround strategy, which entailed cutting costs and selling off foreign divisions to focus on the U.S. business. Now the chain’s main objective is increasing sales with improved online operations, customer service and price matching, as well as devoting more space to top brands like Samsung and Apple.
However, the Samsung recalls, which now also include washing machines, are expected to lower revenue this quarter by $200 million and reduce same-store sales by 1.5 percentage points. So Best Buy now expects total revenue of $13.4 billion to $13.6 billion. Analysts projected $13.7 billion. The company forecast same-store sales to be in a range of declining 1 percent to a gain of 1 percent.
The company’s forecast for earnings of $1.62 to $1.67 a share beat the $1.58 average estimate. Best Buy declined to say how much of an effect the recalls would have on fourth-quarter profit.
And now Best Buy heads into the all-important holiday-shopping season, when competition increases as discounters like Wal-Mart Stores Inc. and Target Corp. pile on promotions for televisions and tech gadgets. Investors also pay more attention during the period. Last holiday season, Best Buy posted weak results, and the stock plummeted.
Chief Financial Officer Corie Barry said in the statement that Best Buy is encouraged by the quality of its assortment and new products heading into the holiday shopping season.
“From a revenue standpoint, we are excited by the rate of technology innovation,” she said.