Earnings Scorecard: Best Buy - Analyst Blog

Best Buy Company Inc. (BBY), the leading specialty retailer of consumer electronic products, recently posted lower-than-expected third-quarter 2011 results and lowers its full-year outlook.

Street analysts had more than a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts' estimate revisions and the Zacks Rank as well as long-term recommendation for the stock.

Earnings Report Review

Best Buy's quarterly earnings of 54 cents a share, missed the Zacks Consensus Estimate of 60 cents, but rose marginally by 1.9% from 53 cents delivered in the prior-year quarter, due to tight cost control.

Richfield, Minnesota-based company, Best Buy, said that total revenue tumbled 1.1% to $11,890 million from the prior-year quarter, reflecting a 3.3% fall registered in comparable-store sales, offset by the net addition of stores in the last 12 months. Comps in the prior-year quarter had increased 1.7%.

The total revenue also fell short of the Zacks Consensus Revenue Estimate of $12,484 million. Domestic segment revenue slipped 2.5% to $8,710 million, whereas International revenue climbed 2.8% to $3,180 million.

(Read our full coverage on this earnings report: Best Buy Misses, Lowers Outlook)

Agreement of Estimate Revisions

Clearly, a negative sentiment is palpable among analysts, who remain pessimistic about Best Buy's performance. Following the earnings release, the Zacks Consensus Estimates have been falling with analysts remaining bearish on the stock, given lower-than-expected results and a truncated guidance.

Management now expects fiscal 2011 earnings in the range of $3.20 to $3.40 down from $3.55 to $3.70 anticipated earlier. Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), saw its domestic market share shrink by 110 basis points, reflecting fall in televisions, mobile computing and gaming software. The retailer now expects to end the fiscal year with a loss in market share.

The Zacks Consensus Estimates have been dipping with analysts chopping their estimates. In the last 7 days, 14 out of 24 analysts covering the stock decreased their estimates for fourth-quarter 2011. For first-quarter 2012, 7 analysts lowered their projections in the last 7 days.

For fiscal 2011 and 2012, 2 analysts and 15 analysts, respectively, have changed their estimates in the downward direction in the last 7 days.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 dipped by 3 cents to $3.30 and for fiscal 2012 the Estimate dropped 21 cents to $3.63. In the last 30 days, the Estimates fell by 29 cents for fiscal 2011 and by 30 cents for fiscal 2012. 

For fourth-quarter 2011, Zacks Consensus Estimate slipped by 14 cents to $1.86, and for first-quarter 2012 it fell by 3 cents to 43 cents a share in the last 7 days. In the last 30 days, the Estimates dropped by 18 cents for fourth-quarter 2011 and 5 cents for first-quarter 2012.

The estimates in the current Zacks Consensus for fourth-quarter 2011 range from a low of $1.72 to a high of $2.08. For fiscal 2011, the estimates range from $3.20 to $3.43.

Best Buy in Neutral Lane

Best Buy's third-quarter 2011 results missed the Zacks Consensus Estimates for both top and bottom lines. Consequently, management lowered its fiscal 2011 earnings guidance. However, the 1.1% fall in the top line and a 1.2% increase in selling, general and administrative expenses were offset by a 1.9% drop in cost of goods sold leading to an increase in margins. Gross margin for the quarter expanded 60 basis points. Management forecast an increase in gross margin for the fourth quarter based on cost containment initiatives and growth in Best Buy Mobile. However, we still remain concerned about the company losing market share, falling comps in televisions, entertainment hardware and software categories, as well as a cautious consumer behavior.

Currently, we have a ‘Neutral' rating on the stock. However, Best Buy's shares maintain a Zacks #4 Rank, which translates into a short-term ‘Sell' recommendation.