Best Buy (BBY) Tops Q3 EPS by 7c; Comps Show Surprise Gain

Best Buy (NYSE: BBY) reported Q3 EPS of $0.32, $0.07 better than the analyst estimate of $0.25. Revenue was $9.38 billion, versus consensus estimates of $9.11 billion.

Comps rose 2.2 percent, versus estimates calling for a drop of 2 percent.

Hubert Joly, Best Buy president and CEO, commented, "In the third quarter, our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation. This resulted in $9.4 billion in revenue and $0.32 in non-GAAP diluted earnings per share versus $0.18 last year. Operationally, this year-over-year improvement was primarily driven by 0.6% revenue growth and the benefits from our Renew Blue and other SG&A cost reduction initiatives, partially offset by strategic pricing investments and the ongoing competitive pressure on our gross profit rate. On the top line, while sales in the NPD-reported Consumer Electronics categories declined 0.2%4, our strength in televisions, computing, and tablets versus the industry, in addition to our growth in gaming and appliances, drove a Domestic comparable sales increase of 2.4%, excluding the 80-basis point estimated benefit associated with the classification of revenue for the new mobile carrier installment billing plans2. Domestic online comparable sales increased 22%.”

Joly concluded, “As we enter the fourth quarter, we are excited about our holiday plan, which has been built around (1) the cumulative progress we have made against our Renew Blue priorities; (2) an operational roadmap that incorporates the specific learnings that we gained from last year; and (3) our current views on the consumer and competitive environment. Within this plan, we would like to highlight the following initiatives that we believe will drive better year-over-year outcomes: (1) the customer-facing changes that we have made on our site and in our stores that touch many of our key categories, especially home theater, accessories, appliances, emerging categories such as health & wearables and connected home, and digital imaging; (2) our ability this year to sell installment billing plans in the mobile phone category; (3) a more inspirational gifting strategy; (4) a more defined, structured and analytical approach to our promotional strategy and competitive response plans; (5) more relevant and targeted marketing investments, including a more concise statement of our value proposition – Expert Service. Unbeatable Price.; and (6) increased inventory availability primarily due to the rollout of ship-from-store to 1,400 stores versus 400 stores last year. Like every holiday, though, we believe the outcome of these initiatives is, and will continue to be, tempered by other external and internal factors – including the investments that are required to drive them.”

Renew Blue Cost Reduction Initiatives Update

Since our Q2 FY15 earnings release, Renew Blue annualized cost reductions have increased an additional $65 million, bringing the total Renew Blue annualized cost reductions to $965 million ($695 million in SG&A expenses and $270 million in cost of goods sold). This $65 million in cost reductions ($25 million in SG&A and $40 million in cost of goods sold) is primarily driven by (1) lower costs associated with returns, replacements and damages; (2) efficiency improvements in the US and Canada; and (3) supply chain efficiencies.

For earnings history and earnings-related data on Best Buy (BBY) click here.

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