In a recent update received for Best Buy Co., Inc. (NYSE:BBY), the company has declared results for the second quarter ended August 1, 2015 as contrast to the second quarter ended August 2, 2014.
Domestic Segment Second Quarter Results
Domestic revenue of $7.9 billion raised 3.9% as compared to last year.
This improvement was primarily driven by: (1) a comparable sales improvement of 2.7%, not taking into account the estimated 110-basis point benefit associated with the classification of revenue for the mobile carrier installment billing plans; (2) an estimated 110-basis point benefit associated with installment billing; and (3) a 30-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio and an extended warranty deferred revenue adjustment.
From a merchandising perspective, comparable sales growth in major appliances, televisions, mobile phones (not taking into account the impact of installment billing) and health and fitness was partially offset by a decline in tablets. The growth in mobile phones was primarily driven by higher year-over-year selling prices. The company also saw continued revenue declines in services. This decline of 13.1% was primarily driven by the reduction of frequency and severity of claims on extended warranties, which has reduced repair revenue, and to a much lesser extent, declining attach rates.
Domestic online revenue of $676 million raised 17.0% on a comparable basis primarily due to raised traffic and higher conversion rates. As a percentage of total Domestic revenue, online revenue raised 90 basis points to 8.6% as compared to 7.7% last year.
Domestic Gross Profit Rate
Domestic gross profit rate was 24.7% as compared to 23.4% last year. On a non-GAAP basis, gross profit rate was 24.6% as compared to 23.4% last year. This 120-basis point improvement was primarily due to (1) the positive impact of changes in mobile warranty plans which resulted in lower costs due to lower claim frequency and severity; (2) rate improvements in computing hardware; (3) an raised mix of higher-margin large screen televisions; (4) a 25-basis point impact from a periodic profit sharing payment based on the performance of the company’s externally managed extended service plan portfolio and an extended warranty deferred revenue adjustment; and (5) an additional positive mix shift due to significantly reduced revenue in the lower-margin tablet category. These improvements were partially offset by a lower rate in the mobile category driven by raised sales of higher priced iconic mobile phones, which have higher gross profit dollars but carry a lower gross profit rate.
Domestic Selling, General and Administrative Expenses
Domestic SG&A expenses were $1.64 billion, or 20.8% of revenue, as compared to $1.52 billion, or 20.1% of revenue, last year. On a non-GAAP basis, SG&A expenses were $1.62 billion, or 20.6% of revenue, as compared to $1.51 billion, or 19.9% of revenue, last year. This $114 million, or 70 basis point, improvement in non-GAAP SG&A was primarily driven by investments in future growth initiatives, SG&A inflation and higher incentive compensation.
International Segment Second Quarter Results
International revenue of $650 million declined 25.6% as compared to last year. This decline was primarily driven by (1) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; (2) a negative foreign currency impact of about 1,200 basis points; and (3) ongoing softness in the Canadian consumer electronics industry.
International Gross Profit Rate
International gross profit rate was 23.4% as compared to 22.9% last year. On a non-GAAP basis, gross profit rate was flat year-over-year at 22.9%.
International SG&A expenses were $175 million, or 26.9% of revenue, as compared to $227 million, or 26.0% of revenue, last year. On a non-GAAP basis, SG&A expenses were $170 million, or 26.2% of revenue, as compared to $227 million, or 26.0% of revenue, last year. In dollars, non-GAAP SG&A reduced $57 million primarily driven by the elimination of expenses associated with closed stores as part of the Canadian brand consolidation and the positive impact of foreign exchange rates. From a rate perspective, non-GAAP SG&A raised 20 basis point driven by year-over-year sales deleverage.
In Q2 FY16, the non-GAAP ongoing operations effective income tax rate raised 250 basis points to 37.1% as compared to 34.6% last year due to a discrete income tax benefit recognized in Q2 FY15.
For Q3 FY16, the non-GAAP ongoing operations effective income tax rate is predictable to be in the range of 39% to 40%, as compared to 38.1% last year, which could result in a negative $0.01 year-over-year non-GAAP diluted EPS impact in Q3 FY16.
Dividends and Share Repurchases
On July 2, 2015, the company paid a quarterly dividend of $0.23 per common share outstanding, or $81 million.
On March 3, 2015, the company declared the intent to repurchase $1 billion worth of its shares over a three-year period. Under this program, the company repurchased 9.4 million shares of its common stock for $321 million during Q2 FY16.
Best Buy is planned to conduct an earnings conference call at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) on August 25, 2015.
The stock market dropped for Best Buy Co., Inc. (BBY), on Monday. The firm was settled at $29.27, which means it dropped by -3.02% or close to -0.91 points.
A few analysts weighed in on Best Buy ahead of earnings:
- Piper Jaffray reiterated a Buy rating but lowered its price target to $35 from $45.
- Riley reiterated a Buy rating with a $47 price target.
- Credit Suisse reiterated a Buy rating with a $45 price target.