Electronics retail giant Best Buy (NYSE:BBY) reported first-quarter results on Tuesday that saw sales come in ahead of analyst projections. Profits fell compared to last year's first quarter, but also beat analyst expectations. Domestic sales continue to struggle, but the company is proving it has a number of ways to keep sales and earnings moving steadily forward.
TUTORIAL: Five Minute Investing

First Quarter Recap
Total sales rose a very modest 1% to just below $11 billion as double digit growth in online sales, mobile phone sales and a healthy 7.6% advance in international sales (28.2% of total sales) were offset by a continued decline in flat-panel televisions and "physical media", including recorded music and movies. The latter category continues to see consumers migrate to online offerings from the likes of Apple's (Nasdaq:AAPL) iTunes and Netflix's (Nasdaq:NFLX) online movie subscription model. Sales of Apple's iPad and eReaders, including Amazon's (Nasdaq:AMZN) Kindle and even Barnes and Noble's (NYSE:BKS) Nook, also proved popular during the quarter.

A more promotional sales environment caused domestic gross profit margins to fall to 25.1% of sales as gross profits declined 3% to $2 billion. Total company gross profits fell a less severe 1% on strong international profit growth. Canada was singled out for higher selling prices. SG&A costs were flat compared to last year's first quarter, and resulted in a total operating income decline of 10% to $282 million. This represented a razor-thin operating margin of 2.6% of sales. Higher interest expense contributed in sending the bottom line down further as net income fell 12.2% to $136 million. Share buybacks helped per-share results as earnings fell only 2.8% to 35 cents per diluted share.

For the full year, the company said to expect sales between $51 billion and $52.5 billion for year-over-year growth in the low-single digits. Earnings guidance is in a range of $3.28 and $3.53 per diluted share for year-over-year growth between 6.5% and 14.6%.

The Bottom Line
Despite the near-term pressure to Best Buy's domestic trends, it appears to have a number of levers to pull to keep overall profitability moving forward. Its international sales and profits both continue to improve, and its size is allowing it to drive a hard bargain with suppliers. For the quarter, it boosted operating cash flow markedly through lower inventories and taking longer to pay off accounts payable.

At a forward P/E of about 9, the stock continues to have a favorable risk/reward tradeoff. As a giant electronics retailer with a wide array of products, it should always be able to offer popular merchandise to boost sales and earnings. The long-term risk is that consumers increasingly buy these products online, but there should always be a need to see the most popular electronic gadget in person before purchase, and talk with a knowledgeable sales employee to see exactly how it works. (For related reading, also take a look at Analyzing Retail Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Why did Wal-Mart's Stock Take a Fall in 2015?

    Wal-Mart is the largest company in the world, with a sterling track-record of profits and dividends. So why has its stock fallen sharply in 2015?
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Investing

    Retailers Rebel Against Black Friday: Bad Move?

    The Black Friday creep may have hit a wall as some stores are shutting their doors on Thanksgiving and even Black Friday to give employees the day off.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  8. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  9. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  10. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center