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Best Buy Gets Discounted


But market reaction is oversold, overdone.

On Tuesday, when it seems that most of the civilized world had its eye on the big name financials, electronics retailer Best Buy (BBY) disseminated its second-quarter numbers.

In the period ended August 30th, the Minnesota-based company reported a bottom line profit of $202 million, or $0.48 per share - bad news, since it was markedly lower than the $250 million or $0.55 share it earned in the same period last year. And the news gets even worse: The number was also a hefty $0.09 shy of what analysts had been looking for.

The reason: A rising SG&A line. In fact, as a percentage of sales, SG&A came in at 20.8% in the most recent quarter, versus 19.9% in the comparable period last year. According to the earnings release, "Increases in store labor to support the Best Buy Mobile operating model and planned investments in customer-facing labor generated most of the SG&A rate increase."

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But it wasn't all doom and gloom: Its gross margin came in at 24.3%, only 10 basis points lower than what it reported in the comparable period last year. Folks, in this environment -- and with all the discounting that's going on -- I think that's not half bad.

To give you a sense of how things are at competitor Circuit City (CC), for example: In its latest quarter, its gross margin came in at 20.8%, which was 170 basis points below what it turned in during the comparable period the year before.

Another thing that caught my eye was its comp-store-sales numbers, which were up 4.2% in the period - and it was going up against a respectable comparison. A gander at last year's second-quarter release reveals that Best Buy posted a comp-store gain of 3.6% at that time.

Its revenue number also came in at roughly $9.8 billion, ahead of analysts' expectations, which put the number at $9.67 billion.

Finally, in conjunction with its second-quarter numbers, the company said that it's looking for earnings of between $3.25 and $3.40 a share for the year. That's good news for 2 reasons: First, the Street is currently looking for $3.28 a share - so it's essentially in line with expectations. Second, it seems consistent with guidance it offered up back in June in conjunction with its first-quarter results.

In sum, while its EPS number wasn't all that great, the revenue number and comps do, I think, deserve attention. To me, the reaction was a bit overdone.

Best Buy closed at $42.40, down $1.30 or 2.97%.
No positions in stocks mentioned.

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