Best Buy (BBY) Tops Q4 EPS Views; Issues Light Q1 Outlook; Announces New Capital Return Program

(Updated - February 25, 2016 7:03 AM EST)

Best Buy (NYSE: BBY) reported Q4 EPS of $1.53, versus the analyst estimate of $1.39. Revenue for the quarter came in at $13.6 billion versus the consensus estimate of $13.61 billion.

Domestic comps rose 13.7 percent, from a 9.7 percent gain in the same period last year.

Hubert Joly, Best Buy chairman and CEO, commented, “In the fourth quarter, we delivered Enterprise revenue of $13.62 billion, improved our non-GAAP operating income rate by 10 basis points to 5.9% and delivered a better-than-expected non-GAAP EPS of $1.53 versus $1.48 last year. In our Domestic business, we exceeded our bottom-line expectations due to a well-executed holiday plan, a disciplined promotional strategy, better recovery on returned and clearance product and strong expense management. While Domestic revenue declined 1.5%, it was against a backdrop where the NPD-reported categories were down 5.1%.8 In addition, we continued to drive significant growth in the online channel – with eCommerce revenue increasing nearly 14% to 15.6% of total Domestic revenue.”

Q1 FY17 Financial Guidance

Best Buy is providing the following Q1 FY17 financial guidance:

• Enterprise revenue in the range of $8.25 to $8.35 billion, a decline of (2.4%) to (3.6%) (The Street expects $8.45 billion.)
• International revenue decline of (15%) to (20%)
• Enterprise and Domestic comparable sales decline of (1.0%) to (2.0%)
• Non-GAAP effective income tax rate5 of approximately 39.0% to 39.5% versus 36.4% last year, resulting in a negative $0.02 year-over-year non-GAAP EPS impact
• Diluted weighted average share count of 326 million versus 358 million last year, resulting in a positive $0.03 year-over-year non-GAAP EPS impact
• Non-GAAP diluted EPS5 of $0.31 to $0.35 versus $0.37 last year (The Street see EPS of $0.39.)

Capital Return:

Best Buy also announced that its Board of Directors authorized a plan to return excess capital to shareholders as follows:

• A 22% increase in the regular quarterly dividend to $0.28 per share, effective immediately;
• A new $1 billion share repurchase plan expected to be completed over the next two years; and
• A special dividend of $0.45 per share, or approximately $145 million; related to the net after-tax proceeds from certain legal settlements and asset disposals.

This plan is consistent with the company’s long-term capital allocation strategy to first fund operations and investments in growth, including potential acquisitions, and then to return excess free cash flow over time to shareholders through dividends and share repurchases, while maintaining investment grade credit metrics. As it relates to the return of excess free cash flow, the company’s intent is as follows:

• Be a premium dividend payer, with a non-GAAP dividend payout ratio1 between 35% to 45%; and
• Regularly repurchase shares with a minimum annual expectation of offsetting dilution from equity based awards under the company’s equity compensation plans.

Hubert Joly, Best Buy chairman and CEO, commented, “After three consecutive years of strong cash flow generation under Renew Blue, we believe now is an ideal time to provide our shareholders with a view of our long-term capital allocation strategy. This strategy is based on our strong cash position today, our ongoing confidence in our future cash-flow generation and our intent to regularly return excess free cash flow to our shareholders over time. In line with this strategy, our fiscal 2017 return of capital plan includes a 22% increase in the regular quarterly dividend to $0.28 per share, a two-year $1 billion share repurchase program and a special dividend of $0.45 per share. This is in addition to the $1.5 billion in cash we returned to shareholders in fiscal 2016.”

The regular quarterly dividend and special dividend will be payable on April 7, 2016 to shareholders of record as of the close of business on March 17, 2016. The company had 323,827,702 shares of common stock issued and outstanding as of January 30, 2016. The regular quarterly dividend, share repurchases and special dividend will be funded through existing cash and cash equivalents on the balance sheet and future cash flow generation. The share repurchases will be executed in the open market or through privately negotiated transactions at times and amounts determined by the company based on its evaluation of market conditions and other factors.

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

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