Analyst: Best Buy Price Competition Will Continue to Erode Margins
The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Q2 EPS upside from cost control. Revenue was $9.3 billion, compared with our estimate of $9.2 billion and the consensus estimate of $9.1 billion. Non-GAAP EPS was $0.32 (excluding a $0.37/share net benefit primarily from LCD settlements), compared with our estimate of $0.07, and the consensus estimate of $0.12.
Best Buy (NYSE:BBY) eliminated an additional $65 million in annualized costs, bringing the total annualized cost reductions to $390 million. Lower costs drove profits marginally higher, but comps and margins continue to decline. Until Best Buy can reverse its negative comp and margin trends, we cannot recommend the stock.
Top-line weakness continued through Q2, while domestic online sales grew 10.5 percent to $477 million. The company reported comps of down 0.6 percent. Overall sales were down 0.4% year-over-year, with domestic up 0.1 percent, and international down 2.9%, compared to our estimate of down 1 percent. While online grew an impressive $45 million, it only slightly exceeded the comp decline of $31 million.