U.S. consumer electronics chain Best Buy (BBY, Financial) reported its fourth quarter results last month. The numbers were pretty impressive, resulting in a sharp rise in its share price. Moreover, the company’s great performance in the last year resulted in an increase of 48.6% in its share price. Further, the holiday season is the peak season for such products since customers are willing to splurge on discretionary items and are not restricted to necessities only.
Digging into the details
Revenue for the quarter surged 1.3% to $14.2 billion, over last year. This was ahead of the analysts’ estimate of $14.35 billion. The top line was driven by higher demand for mobile phones and big screen TVs. The World Cup was one of the reasons why customers picked up big screen TVs. However, the computer and the tablet category showed weakness, as demand for such products was on the decline.
Mobile phone sales increased because of the new concept of installment billing which helps customers upgrade the phone and spread the payment over a period of time. Moreover, a strong holiday season resulted in a same-store sales growth of 2% during the quarter.
Further, the comparable store sales metric in the U.S. was 2.8%. Thus, the total sales in the region jumped 3.2%, despite a drop of 3.2% in the overall demand for consumer electronics. But the international segment was affected by weak demand in Canada, stronger U.S. dollar and store closures, leading to a drop of 4% in the same-store sales. Domestic online sales rose 9.7% over last year, owing to the growing popularity of online shopping.
The gross margin expanded to 21.3% from 20.2% in the previous year. Margins were helped by the sale of higher margin products, such as phones and TVs. The adjusted earnings of the company jumped to $1.48 per share from $1.35 per share in the prior year.
The electronics company has undertaken a cost cutting initiative which will help to save $400 million over the next three years. The efforts include cutting jobs and removing unnecessary layers of management.
More efforts to improve
Best Buy faces stiff competition from online retailers such as Amazon, who provide huge discounts and the convenience of getting the goods delivered at the doorstep. Thus, efforts such as personal service and heavy discounts are made by the electronics retailer in order to match up to the online retailers.
The company also remains focused on improving merchandising, opening new store-in-store format stores under the television and kitchen businesses. Also, it has increased its private label products and has made investments in marketing and retail, with the aim to drive traffic.
Furthermore, Best Buy plans to sell off its China business so that it can concentrate on the North American business. However, it expects same store sales to be flat due to lower demand for tablets and computers.
Key takeaway
Best Buy has been quite successful in attracting customers and overcoming stiff competition. Its results have been impressive and future efforts to cut costs and boost revenue should be rewarding. Moreover, the company increased its regular dividends by 21% along with the announcement of one – time special dividend of $0.51 per share. It has also announced a $1 billion share repurchase program for the next three years. These announcements made the investors happy. Thus, this retailer should be a valuable addition to your portfolio.
