Though back-to-school consumer spending may have played a role, things still seem to be looking up for leading electronics retailer Best Buy
Fiscal-2010 second-quarter revenue increased 12%, with the inclusion of the European segment and new store additions. Meanwhile, same-store sales slid 3.9% -- a substantial improvement from the prior quarter's 6.2% tumble.
On a category basis, the company cited sales gains in mobile phones, notebook computers, and flat-panel TVs -- good news for LCD manufacturer Corning
As for the bottom line, earnings per share fell 22% year over year, to $0.37. The cause is twofold. First, operating profit margin narrowed on higher selling, general, and administrative expenses. The newly included European segment, which has higher operating costs in general, contributed to the margin compression, while steady fixed costs and lower same-store sales drove the remainder of the weakness.
Second -- and this is a reason for shareholder cheer -- Best Buy lost $0.03, or 7.5%, from EPS, but only because of a temporarily higher tax rate. The tax rate, fortunately, should fall for the remainder of the fiscal year.
In other good news, management estimated 2.7% of market share gain for the three months ended July 31. No doubt there'll be plenty of pundit commentary on whether those results should've been stronger in the absence of Circuit City. As for the rest of the year, management issued EPS guidance of $2.64 - $2.94. That represents a boost at the low and high end, something that not even consumer staples giant Procter & Gamble
With a forward P/E of 11.9, Best Buy shares look appealing, especially for risk-inclined investors. But keep in mind that the retailer hardly lacks competition. Target
Moreover, consumer credit contracted at a record 10.4% annual pace in July, which is reflected in MasterCard's
But as a play on an eventual recovery, Best Buy does look like one of the better bets.
Best Buy and Electronic Arts are Motley Fool Stock Advisor recommendations. Best Buy and Wal-Mart are Inside Value recommendations. Procter & Gamble is an Income Investor pick. The Fool owns shares of Procter & Gamble and Best Buy. Try any of our Foolish newsletter services free for 30 days.