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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Before the market open Friday, Best Buy (NYSE:BBY) reported its holiday sales results (9- weeks ending January 5), with comps of down 1.4% (flat domestically, down 6.4% internationally), above our estimate of down 2.5%. Best Buy attributed the comps improvement domestically to its holiday selling strategy, which included better product assortment, employee training, and a price match strategy. Mobile phones, tablets/eReaders, and appliances had positive comps, while entertainment, TVs, and computing declined. Internationally, Canada and China were weak. As in the past, Best Buy did not host a call to discuss results.
Best Buy lowered FY:13 free cash flow guidance to ≈ $500 million from $850 –1,050 million, citing lower accounts payable assumptions. Accounts payable are assumed to be down y-o-y from earlier payment of inventory purchases and a shift in sales mix to higher-velocity merchandise with shorter payment terms. However, according to the company, comps, gross margin, earnings and inventory levels were in line with assumptions that supported the earlier forecast.
We observed aggressive promotional activity during Q4, which we believe kept comps afloat, likely at the expense of margins. We are modeling consolidated Q4 gross margin erosion of…
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