BBY $54~$51.50 ...misses by $0.05, cites margin pressure, reaffirms FY07 EPS outlook (53.92 ) : Reports Q3 (Nov) earnings of $0.31 per share, $0.04 worse than the Reuters Estimates consensus of $0.35; revenues rose 15.5% year/year to $8.47 bln vs the $8.45 bln consensus. BBY says very competitive climate put pressure on our margins, resulting in earnings below expectations. CEO comments, "The market share gains we saw, and the new customers we acquired, give us momentum as we begin our fourth quarter, which generates the largest percentage of our earnings for the year." Co reaffirms guidance for FY07, says co is still on track to deliver EPS $2.65-2.80 vs. $2.82 consensus. Co sees FY07 same store sales to rise 4-5% vs previous co guidance of 3-5%.
Best Buy Conference Call Summary (50.79 -3.11) -Update : While we don't provide quarterly earnings estimates, we understand that earnings can fall short of analysts expectations viewed as a miss. We appreciate how our fellow shareholders may be feeling. We are not disappointed in our performance. We realize that we may have a point of view, but from our perspective, we are having a powerful year. And we are optimistic because of the healthy indicaters we see in the business"... Q3 finished with a robust double digit comparable store sales gain on the Thanksgiving weekend; 'finish to the quarter was impressive and should bode well for the fourth quarter'... experience softer sales in growth in October and early November... double digit comp sales improvement this Thanksgiving day weekend came on top of last year's double digit comp gain... generated higher than expected revenue gains in notebook computers, which are at lower margins... environment was very promotional this quarter in categories like home theater and notebooks... believes they are gaining market share... Looking for the full year, now expect gross profit rate to be down ~60 basis points for the year; modest change from prior guidance was driven by Q3 results in the anticipated mix shift to lower margin gaming and MP3 players... expect comp store sales gains of 4-5% for the year... BBY seeing strong sales of gift cards this year as we have in the past; expect gift cards to be at double digit verses prior year...Belives they are at the onset of a tremendous growth opportunity for the industry; household penetration for high definition TVs is still rather small (20-25%), which co sees a 75%+ opportunity; look at the next several years and Q4 in particular as a tremendous opportunity of growth... Thanksgiving Weekend saw triple digit growth on both the in-home geek squad and in-home theater installation; Geek squad is still a strong double digit growth for co, preparing not only for this holiday, but for Vista launch as well... co would not say that consumers are just buying lower priced flat panel TVs... expected higher margins than they got for Thanksgiving weekend but are very bullish on customer response for the long term.
Best Buy: Promo pricing helps top line but leads to EPS miss - Kaufman (51.30 ) : Kaufman says BBY's fiscal 3Q07 bottom line miss was due to margin pressure. Firm notes BBY reported its fiscal 3Q07 results yesterday, with revs of $8.47 bln - in line with their $8.48 bln est. EPS of $0.31 fell $0.05 short of firm's $0.36 est ($0.04 short of consensus), largely due to gross margin pressure from heavy promotional pricing and increased mix of lower margin products in the quarter as well as a result of significantly lower margins from its Five Star (China) operations. Further, benefit of gift card breakage in fiscal 3Q06 contributed approx 1/3 of the Y/Y margin decline. Gross margins of 23.5% (below their 25% est) were approx 85 basis points lower than 24.4% in fiscal 3Q06. Operating margins of 2.3% (below firm's 3% est) were approx 30 basis points lower than 2.6% in fiscal 3Q06. While firm now believes that services has a greater likelihood of sale in the aftermarket, they continue to anticipate margin pressure from both lowered pricing of high ticket products as well as rev growth in China.
Prudential downgrades Best Buy (BBY 51.30) to Neutral from Overweight and lowers their tgt to $50 from $55, following Q307 earnings in which profit margins were well below firm expectations...
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