Best Buy Q4 profit tops view, revenue misses; boosts dividend

Minneapolis – Strong sales of high-margin consumer electronics and TVs during the holiday season, as well as declining expenses, helped Best Buy Inc. beat Wall Street expectations for profit in the fourth quarter of fiscal 2015. The retailer on Tuesday reported that net income surged 77% to $519 million from $293 million in the year ago period.



Also on Tuesday, Best Buy said it had approved $1 billion in buybacks to be carried out over three years. The retailer also announced a 21% boost to its quarterly dividend and a special dividend of 51 cents a share.



The company said it completed the sale of its Five Star business in China on February 13, 2015, with the results of the division until January 31, 2015 is reported in discontinued operations.



Best Buy’s total revenue edged up 1.3% $14.2 billion from $14.02 billion, missing estimates. Total same-store sales increased 2%, slightly ahead of Wall Street predictions of 1.9%.



The retailer’s domestic revenues increased 3.2% to $12.70 billion. Same-store sales rose 2.8%. Comparable online sales rose 9.7% to $1.72 billion.



“A compelling merchandise assortment and strong multichannel execution drove these better-than-expected results as we capitalized on the product cycles in large screen televisions and mobile phones,” stated Hubert Joly, Best Buy president and CEO. “These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines.”



Selling, general and administrative expenses came in at $2.22 billion, down from $2.26 billion a year earlier. Gross profit margin widened to 21.3% from 20.2% a year earlier.



Since the third quarter of fiscal 2015, Best Buy has achieved annualized cost reductions of $55 million from its multi-year “renew blue” cost-cutting program, bringing the total annualized cost reductions to $1.02 billion ($710 million in SG&A expenses and $310 million in cost of goods sold). This $55 million in cost reductions ($15 million in SG&A and $40 million in cost of goods sold) is primarily driven by lower costs associated with returns, replacements and damages; supply chain efficiencies; and efficiency improvements in the U.S. and Canada.



In fiscal 2016, the company is launching phase two of its Renew Blue cost reduction and gross profit optimization program with a target of approximately $400 million in annualized operating income improvement over three years, including the remaining benefit of approximately $250 million from the company’s previously discussed returns, replacements and damages opportunity. These savings will be structural in nature and will be driven by streamlined processes and operational efficiencies that will be primarily enabled through investments in systems.



Looking ahead, the company said it expects first quarter and second revenue and comparable sales growth, excluding the estimated impact of installment billing, to be in the range of flat to negative low-single digits.



The company added that it expects the impact of the investments and economic pressures to begin in the first quarter and continue throughout the year in fiscal 2016.



“As we look forward to fiscal 2016 and beyond, it is imperative that we continue to focus on driving comparable sales and improving our operating income rate while funding investments in our future,” said Joly. “As we’ve previously shared, we are pursuing a strategy that is focused on delivering advice, service and convenience at competitive prices to our customers. Within this strategy, we are focused on driving a number of growth initiatives around key product categories, life events and services. To drive these initiatives, we are pursuing and investing in the transformation of key functions and processes.”



For the full fiscal year, Best Buy reported net income of $1.23 billion, more than double $532 million the prior fiscal year. This profit growth came as enterprise sales declined slightly to $40.33 billion from $40.61 billion.



Best Buy also made a few announcements regarding shares. The retailer will provide a special, one-time dividend of $0.51 per share, or approximately $180 million, related to the net after-tax proceeds from LCD-related legal settlements received in the last three fiscal years. Best Buy will also enact a 21% increase in the regular quarterly dividend to $0.23 per share, effective immediately, and resume share repurchases under an existing $5 billion authorization, with the intent to repurchase $1 billion worth of shares during the next three years.