Best Buy continues to rally as it addresses declining comp-store sales

Best Buy withstood merchandising related disruptions during the second quarter to achieve on plan sales results and gain momentum heading into the back half of the year.

Domestic revenue of $7.81 billion increased 0.1% versus last year. This increase was primarily driven by the revenue from 57 net new Best Buy Mobile stand-alone stores that were opened predominantly in the third and fourth quarters of fiscal year 2013, partially offset by the comparable store sales decline.

Domestic online revenue was $477 million and comparable online sales increased 10.5% due to increased traffic and higher average order value. Including new gaming console pre-orders, which the company does not expect to ship or recognize as revenue until the fourth quarter of fiscal year 2014, comparable online demand increased more than 16%.

From a merchandising perspective, strong growth in mobile phone and appliances was partially offset by declines in other categories, including gaming and digital imaging.

“In November at our investor meeting, we talked about the two problems we had to solve: declining comparable store sales and declining operating margins,” said Joly. “Since that time, the resolution of these two problems has become our Renew Blue rallying cry and the organization’s goals and objectives have been prioritized accordingly. While we are clear there is much more work ahead, we have made measurable progress since we unveiled Renew Blue last year, including near flat comparable store sales, substantive cost take outs and better-than-expected earnings in the past three consecutive quarters.”

“As we look forward to the back half of the year, we are encouraged by the momentum that is being driven through the execution of our Renew Blue priorities,” added Sharon McCollam, Best Buy EVP, CAO and CFO. “To build on this momentum and to position us for a strong Q4 FY14 and FY15, our Q3 and Q4 FY14 investment plan, as previously discussed, includes ongoing pricing and SG&A investments related to the following Renew Blue initiatives: price reductions to further enhance Best Buy’s price competitiveness where needed; increased marketing costs to support growth in the mobile category; improvements in the multichannel customer experience; optimization of our retail floor space; and the re-platforming of bestbuy.com. The SG&A component of these investments is inclusive of the $150 to $200 million incremental SG&A that was announced earlier this year.”

International revenue of $1.49 billion declined 2.9% versus last year. The decline was due to the loss of revenue from 15 large format stores that were closed last year in Canada and a comparable store sales decline of 1.8%. Comparable store sales were negatively impacted by lower demand for consumer electronics and ongoing competitive pressure in Canada, partially offset by increased consumer demand in China due to expiring government subsidies that were supported by increased promotional offers.

During the second quarter, Best Buy completed the sale of its 50% interest in Best Buy Europe and received proceeds of $526 million in net cash upon closing and $123 million in cash proceeds from the subsequent sale of the Carphone Warehouse ordinary shares received as part of the consideration for the sale. The company will also receive approximately $39 million in deferred cash plus interest on both the first and second anniversary of the closing.