The news heartened investors who had been concerned about profits
being squeezed during the fourth quarter, the most heavily promoted
and discounted holiday-shopping season since the recession, and
shares rose 5.6 percent to $27.26.
Best Buy had slashed prices throughout the holidays to thwart
competition from Wal-Mart Stores Inc <WMT.N>, Amazon.com Inc <AMZN.O>
and other chains, and had warned last month of a
bigger-than-expected drop in quarterly operating margins.
"The quarter was less bad than everyone expected," said BB&T Capital
Markets analyst Anthony Chukumba, who was encouraged by Best Buy's
efforts to court online shoppers and rein in costs.
The company's stock, one of 2013's hottest, is down 31 percent this
year, while the larger S&P 500 Index <.SPX> index is down 0.2
percent. It trades at about 11.6 times forward earnings, while the
retail sector trades at a multiple of 13.7.
The world's largest consumer electronics chain said it would more
aggressively cut annualized costs, by about $1 billion. It
originally planned to cut costs by $725 million in North America, a
target it has exceeded by $40 million.
The retailer has earned a profit for three straight quarters,
reaping the benefit of restructuring efforts spearheaded by Chief
Executive Hubert Joly and Chief Financial Officer Sharon McCollam.
Under Joly, Best Buy has stripped away layers of management, cut
jobs and costs, shut unprofitable stores and boosted cash by selling
its stake in a European joint venture with Carphone Warehouse Group
MORE FAT TO CUT
Still, Chukumba said the company had further fat to cut and expected
the retailer to work on trimming corporate overhead expenses and
personalizing its marketing.
Earlier this week, the New York Post cited an inside source as
saying the retailer could lay off more 2,000 managers. Best Buy
declined comment on the report.
Other analysts see Best Buy saving more due to its recent focus on
improving how it manages items returned by shoppers.
The retailer said it sees total sales and comparable store sales
remaining slightly negative in the first half of the current
financial year due to larger economic concerns, but did not give
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"There are several moving parts to their guidance for the year, but
today's release maintains our confidence that the turnaround is
progressing," said Janney Capital Markets analyst David Strasser.
Best Buy's overall adjusted operating margin was down 120 basis
points at 4.5 percent in the holiday quarter, versus Strasser's
estimate of 3.8 percent.
The company earned a net $310 million, or 88 cents a share, from
continuing operations in the fourth quarter ended February 1. That
follows a net loss of $461 million, or $1.36 a share, a year
Excluding special items, it earned $1.24 a share. The special items
included restructuring and asset impairment charges and the tax
impact of Best Buy Europe sales.
Analysts, on average, expected a profit of $1.01 a share excluding
items, according to Thomson Reuters I/B/E/S.
Sales fell 3 percent to $14.47 billion, missing analysts' average
estimate of $14.66 billion.
Comparable store sales, comprising revenue at stores, websites and
call centers operating for at least 14 full months, fell 1.2
The company, which recently started shipping directly from its 1,400
stores to compete with rivals Amazon and Wal-Mart, said comparable
online sales grew 25.8 percent at its domestic unit.
(Editing by Bernadette Baum)
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