Softness in the mobile phone category continues to hinder growth at Best Buy Co., which reported a drop in same-store sales in the fourth quarter and continued online strength.
For the fiscal quarter ended Jan. 30, the electronics retailer reported a decline in same-store sales of 1.7%. Specifically, sales of mobile devices and computing devices fell 6.8% in the United States. The category accounts for 43% of the company's total U.S. revenue.
"While domestic revenue declined 1.5%, it was against a backdrop where the NPD-reported categories were down 5.1%. In addition, we continued to drive significant growth in the online channel, with e-commerce revenue increasing nearly 14% to 15.6% of total domestic revenue,"saidHubert Joly, Best Buy chairman and CEO.
Domestic online revenue of $1.95 billion increased 13.7% on a comparable basis primarily due to higher conversion rates. As a percentage of total domestic revenue, online revenue increased 200 basis points to 15.6% versus 13.6% last year.
“Despite relatively soft sales Best Buy overall posted higher operating profit and ended the year with $3.3 billion of cash, and as a result we view the company’s Q4 and FYE performance favorably,” stated Moody’s lead retail analyst Charlie O’Shea. “The march online continues, with 13% sales growth for the year impressive given the size of the business, which we estimate at over $6 billion. In addition, the reload of the $1 billion share repurchase program, which Best Buy indicates will be executed over the next two years, and increased dividend are within our bands of tolerance for the rating.”
Best Buy's net income fell 7.7% to $479 million, or $1.40 per share, in the quarter. Revenue fell 4.1% to $13.62 billion, but came slightly above the average estimate of $13.61 billion.
Best Buy said it expects revenue declines in the first half of the year, followed by growth in the second half, CFO Sharon McCollam said. "In this context, we are targeting flat domestic (U.S.) revenue for the full year ... but recognize that it will be challenging without a strong mobile cycle."
From a merchandising perspective, the company said sales growth in health & wearables, home theater and major appliances was more than offset by significant declines in mobile phones, tablets and digital imaging. The company also saw continued revenue declines in services due to investments in services pricing and the reduction of frequency and severity of claims on extended warranties which has reduced repair revenue.
Joly concluded: “Turning to fiscal 2017, we are entering the next phase of our Renew Blue strategy. Our purpose is to build a company that does a unique job of helping customers learn about and enjoy the latest technology. As we begin this phase, we will execute against the following priorities: (1) build on our strong industry position and multi-channel capabilities to drive the existing business; (2) drive cost reduction and efficiencies; and (3) advance key initiatives to drive future growth and differentiation. Over time, as the fruit of these key initiatives materialize, we expect to accelerate our revenue and operating income growth by taking advantage of opportunities provided by ongoing technology innovation and the need customers have for help. In the short-term, we will be characterized by our strong cash-flow-generating capabilities and our intent to regularly return excess free cash flow to shareholders.”