What to Expect When Best Buy Reports Earnings

Best Buy is set to report earnings on Feb. 27 following a disappointing holiday sales report. The company has made significant progress in becoming more competitive against online retailers like Amazon, and the earnings report should show that the turnaround effort is still on track, despite the holiday setback.

Feb 25, 2014 at 10:02AM

Bby Store

Source: Mike Mozart on Flickr.

Consumer-electronics retailer Best Buy (NYSE:BBY) is set to report its fourth-quarter earnings on Feb. 27. The company announced disappointing holiday sales last month, with same-store sales falling by 0.8% amid a difficult and highly promotional holiday season, and the stock was severely punished as a result. But, as I argued in a previous article, Best Buy's holiday was a setback, not a disaster, and same-store sales growth is not the only important number to consider.

With online retailers like Amazon.com (NASDAQ:AMZN) posing a constant threat, Best Buy has made significant progress in becoming more competitive. Here's what to look for in Best Buy's earnings report.

What analysts are expecting
Analysts are expecting revenue of approximately $14.7 billion for the quarter, down 12.3% compared to the same quarter last year. Store closings and the sale of Best Buy's European business in 2013 are the main drivers of this revenue decline, and analysts expect full-year revenue to fall to $42.7 billion, down from $49.6 billion in 2012.

Earnings per share are expected to come in at $1.01, representing a 35% decline compared to the fourth quarter last year. Analysts have revised this estimate down from $1.61 before the holiday sales announcement, a large shift that might be an overreaction. Best Buy has beaten analyst estimates significantly in the past three quarters, and while the company talked about a reduced operating margin caused by intense competition, another earnings beat isn't out of the question.

Important things to look for
Best Buy's holiday sales report wasn't all bad news, and the earnings report and accompanying conference call should shed some light on the continued progress of the company's turnaround. Best Buy actually gained market share during the holidays, according to the company, and its Net Promoter Score, a metric used to quantify customer satisfaction, has been rising ever since CEO Hubert Joly took the reins in late 2012. A 400-basis-point increase during the holiday period is a sign that Best Buy is taking the necessary steps to improve the customer experience.

Online sales surged 23.5% over the holidays, a significant acceleration compared to the 10% rise during the previous holiday season. Part of Best Buy's strategy has been a heavy focus on improving its e-commerce channel, and those investments look like they're paying off. One driver of this growth has been the company's ship-from-store initiative, whereby online orders can be fulfilled from online distribution centers as well as directly from stores. The program has expanded to more than 400 stores, turning Best Buy's physical retail locations into a key e-commerce asset; over the holiday period, Best Buy actually had a lower average delivery time than Amazon.

The fact that Best Buy achieved faster shipping times during the holidays compared to Amazon is important, as it shows that having physical retail locations can be an advantage. Best Buy has more than 1,000 potential online distribution centers, spread throughout the country, and while Amazon has been aggressively expanding its distribution network, Best Buy's ship-from-store program is something that an online retailer can never match.

The conference call should provide some details on the progress of the ship-from-store rollout, which still includes less than half of Best Buy stores in the United States. Another update to look for is the progress of Best Buy's cost-cutting initiative, part of Joly's "Renew Blue" strategy. The company cut an additional $45 million in annual costs in the fourth quarter through Jan. 16, bringing the total number to $550 million. And Joly's commitment to more quickly and deeply lower the cost structure, stated in the holiday sales release, suggests that the original goal of $725 million in cost cuts may be a conservative estimate.

These cost cuts will help reduce the negative effects of aggressive pricing and are necessary for Best Buy to remain competitive with its online rivals. One area offering ample opportunity to cut costs is reverse logistics, which includes returns, replacements, and damaged products. The company estimates that $400 million in annual losses are associated with reverse logistics; and on the third-quarter conference call Joly stated that the first quarter of this year will see an initial quantity of returned items and open-box inventory available online.

This represents one of the biggest opportunities for Best Buy to cut costs, and investors should look for a progress update during Best Buy's conference call.

The bottom line
Best Buy's holiday season was disappointing to be sure, but the company's earnings report should make it clear that the long-term turnaround story is still intact. Best Buy is becoming more efficient, focusing on e-commerce, and taking advantage of its physical locations in order to boost online sales. While profits in the short term will take a hit, the panic caused by the holiday sales numbers was extremely overdone.

Retail winners
Best Buy isn't the only retailer worth watching. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Timothy Green owns shares of Best Buy. The Motley Fool recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers